[Federal Register Volume 68, Number 211 (Friday, October 31, 2003)]
[Proposed Rules]
[Pages 62164-62195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27305]



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Part II





Department of Agriculture





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Food and Nutrition Service



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7 CFR Part 247



Commodity Supplemental Food Program--Plain Language, Program 
Accountability, and Program Flexibility; Proposed Rule

  Federal Register / Vol. 68, No. 211 / Friday, October 31, 2003 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 247

RIN 0584-AC84


Commodity Supplemental Food Program--Plain Language, Program 
Accountability, and Program Flexibility

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would rewrite the regulations for the 
Commodity Supplemental Food Program in ``plain language'' to help 
program operators and the general public better understand program 
requirements. It would also reduce the time and paperwork burden for 
State and local agencies, increase their flexibility in program 
operations, and strengthen program accountability. Other changes would 
be made to incorporate legislative provisions and improve program 
service and caseload management. The effect of this rule will be to 
make the Commodity Supplemental Food Program easier to understand and 
administer, and more effective and efficient in providing benefits to 
eligible persons.

DATES: Please send your comments to reach us on or before December 30, 
2003. Comments received after the above date will not be considered in 
developing the final rule.

ADDRESSES: You can mail or hand-deliver comments to Lillie F. Ragan, 
Assistant Branch Chief, Household Programs Branch, Food Distribution 
Division, Food and Nutrition Service, U.S. Department of Agriculture, 
Room 500, 3101 Park Center Drive, Alexandria, Virginia 22302-1594.

FOR FURTHER INFORMATION CONTACT: Lillie F. Ragan at the above address 
or telephone (703) 305-2662. A regulatory impact analysis has been 
prepared for this rule. You may request a copy of the analysis by 
contacting us at the above address.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures
II. Procedural Matters
III. Background and Discussion of the Proposed Rule

I. Public Comment Procedures

    Your written comments on this proposed rule should be specific, 
confined to issues pertinent to the proposed rule, and should explain 
your reasons for any change recommended. Where possible, you should 
reference the specific section or paragraph of the proposal you are 
addressing. Comments received after the close of the comment period 
(see DATES) will not be considered or included in the Administrative 
Record for the final rule.
    The comments, including names, street addresses, and other contact 
information of commenters, will be available for public review at the 
Food and Nutrition Service, Room 500, 3101 Park Center Drive, 
Alexandria, Virginia, during regular business hours (8:30 a.m. to 5 
p.m.), Mondays through Fridays, except Federal holidays.

II. Procedural Matters

Clarity of the Regulations

    Executive Order 12866 requires each agency to write regulations 
that are simple and easy to understand. We invite your comments on how 
to make these regulations easier to understand, including answers to 
questions such as the following:
    (1) Are the requirements in the rule clearly stated?
    (2) Does the rule contain technical language or jargon that 
interferes with its clarity?
    (3) Does the format of the rule (grouping and order of sections, 
use of headings, paragraphing, etc.) make it more or less clear?
    (4) Would the rule be easier to understand if it were divided into 
more (but shorter) sections?
    (5) Is the description of the rule in the preamble section entitled 
``Background and Discussion of the Proposed Rule'' helpful in 
understanding the rule? How could this description be more helpful?

Executive Order 12866

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

Executive Order 13132

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Prior to drafting this proposed rule, we received input from State and 
local agencies at various times. Since the Commodity Supplemental Food 
Program (CSFP) is a State-administered, federally funded program, our 
regional offices have informal and formal discussions with State and 
local officials on an ongoing basis regarding program implementation 
and performance. Additionally, Food and Nutrition Service (FNS) 
Headquarters and regional office staff receive input from State and 
local program staff at the annual national CSFP conference, and at 
various other meetings throughout the year. These contacts allow State 
and local agencies to provide feedback that forms the basis for 
proposals to amend program regulations. We will review all comments 
provided during the 60-day comment period following the publication of 
this rule and will develop the final rule after due consideration of 
the concerns expressed in the comments.

Public Law 104-4

    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, 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 of $100 million or more in any one 
year. Thus, this rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Executive Order 12372

    The program addressed in this action is listed in the Catalog of 
Federal Domestic Assistance under 10.565, and is subject to the 
provisions of Executive Order 12372, which requires intergovernmental 
consultation with State and local officials (7 CFR part 3015, Subpart 
V, and final rule-related notices published at 48 FR 29114, June 24, 
1983, and 49 FR 22676, May 31, 1984).

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The Under 
Secretary of Food, Nutrition, and Consumer Services, Eric M. Bost, has 
certified that this action will not have a significant impact on a 
substantial number of small

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entities. While program participants and State agencies and Indian 
Tribal Organizations that administer the programs will be affected by 
this rulemaking, the economic effect will not be significant.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. The rule is intended to have preemptive effect 
with respect to any State or local laws, regulations, or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect. 
Prior to any judicial action challenging the application of CSFP rules, 
exhaustion of administrative remedies, as set out in 7 CFR 247.33, 
would be required.

Regulatory Impact Analysis

    The regulatory amendments proposed in this rule will benefit State 
and local agencies by reducing the paperwork burden and increasing 
flexibility in program administration. Some of the changes will affect 
program eligibility, such as the establishment of income eligibility 
guidelines, the consideration of average income over the previous year, 
and counting the pregnant woman as two in considering income 
eligibility. However, these changes are not expected to result in 
appreciable changes in program participation or increase program costs.
    Other changes will improve program accountability by increasing the 
penalties for program violations and requiring the initiation and 
pursuit of claims against participants who fraudulently obtain program 
benefits. These changes, too, are not expected to result in any 
appreciable changes in program participation or costs.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507), this proposed rule will contain information collections that are 
subject to review and approval by the Office of Management and Budget 
(OMB); therefore, FNS is submitting for public comment the changes in 
the information collection burden that would result from adoption of 
the proposals in the rule.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper 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 the 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.
    To be considered, comments must be postmarked on or before December 
30, 2003. Please send comments to Lillie F. Ragan, Assistant Branch 
Chief, Household Programs Branch, Food Distribution Division, Food and 
Nutrition Service, U.S. Department of Agriculture, Room 500, 3101 Park 
Center Drive, Alexandria, Virginia 22302-1594, and to Lauren 
Wittenberg, Desk Officer, Office of Information and Regulatory Affairs, 
Office of Management and Budget (OMB), Washington, DC 20503. All 
comments will be summarized and included in the request for OMB 
approval of the proposed changes in the information collection burden. 
All comments will become a matter of public record. For further 
information, or for copies of the information collections discussed 
below, please contact Ms. Ragan at the above address or telephone (703) 
305-2662.
    Title: Food Distribution Forms (This information collection burden 
consolidates the reporting and recordkeeping requirements for 7 CFR 
parts 240, 247, 250, 251, 252, 253, and 254).
    OMB Number: 0584-0293.
    Expiration Date: October 31, 2006.
    Type of Request: Revision of a currently approved collection.
    Abstract: This proposed rule would affect only reporting and 
recordkeeping requirements under 7 CFR part 247. The reporting burden 
for this part would be reduced from 350,812 hours to 262,983 hours. The 
recordkeeping burden for this part would increase from 84 hours to 124 
hours. The total information collection burden for OMB Number 0584-0293 
would be reduced from 1,154,152 hours to 1,066,363 hours. Below, we 
describe all proposed changes under the sections proposed in this rule.
    Section 247.4, Agreements. Agreement requirements, currently under 
Sec. Sec.  247.3 and 247.6, would be moved to the proposed Sec. Sec.  
247.4. We propose to make the Federal-State agreement permanent, 
instead of annual, with amendments submitted as needed. The information 
collection burden for Federal/State agreements for all food 
distribution and child nutrition programs is contained in a separate 
information collection--OMB Number 0584-0067. The proposal to make the 
Federal-State agreement for the CSFP permanent would require no change 
in the information collection burden, as this change was effected 
(erroneously, in the case of CSFP) when the agreement for other food 
distribution programs was made permanent in 1997. We propose to reduce 
the required elements for State agreements with local agencies, and for 
local agency agreements with other agencies. We estimate that these 
agreements would take 2 hours to complete, instead of the present 8 
hours. We also propose to clarify that the duration of agreements 
between State and local agencies is determined by the State agency, and 
the duration of agreements between local agencies and other agencies is 
determined by the local agency. We estimate that 50 agreements between 
State and local agencies, and between local agencies and other 
agencies, would be completed each year. The total burden for completion 
of State and local agency agreements would be reduced from 480 to 100 
hours.
    Section 247.6, State Plan. State Plan requirements, currently under 
Sec.  247.5, would be moved to the proposed Sec.  247.6. We propose to 
make the State Plan permanent, with amendments submitted as needed, 
instead of annual. We also propose to remove several elements that are 
currently required to be included in the State Plan. We estimate that, 
on average, one State agency per year would submit a State Plan, which 
would require 50 hours to develop, instead of the current 100 hours. 
Thus, the total burden for State Plan submissions will be 50 hours. 
Since participating State agencies must submit amendments to request 
additional caseload for the following year, and to make any other 
changes in the Plan, we estimate that all 35 State agencies projected 
to be participating in fiscal year 2004 will submit an amendment to the 
Plan each year. We estimate that the submission of an amendment will 
require about 5 hours on average. Thus, the total burden for the 
submission of amendments to the State Plan would be 175 hours. The 
total information collection burden for development and submission of 
the State Plan and amendments would be reduced from 2,000 to 225 hours.
    Section 247.8, Individuals applying to participate in CSFP, and 
Sec.  247.16, Certification period. The application process for 
individuals applying to participate in CSFP, which is currently under 
Sec.  247.7, would be moved to the

[[Page 62166]]

proposed Sec.  247.8. The certification period requirements, which are 
also currently under Sec.  247.7, would be moved to the proposed Sec.  
247.16. In this rule, we propose to allow State and local agencies to 
extend the certification of elderly participants for additional six-
month periods without a formal review of eligibility. Local agencies 
would have to confirm the elderly participant's address and continued 
interest in receiving CSFP benefits. This change would reduce the time 
required for recertification, or contact with, elderly participants 
from 30 minutes to 15 minutes (0.25 hrs.). The burden for the twice-
annual recertification of the approximately 381,000 elderly individuals 
projected to be participating in fiscal year 2004 would be 190,500 
hours. The time required for recertification of women, infants, and 
children would remain the same (0.50 hrs.). The burden for the twice-
annual recertification of the 66,000 women, infants, and children 
projected to be participating in fiscal year 2004 would be 66,000 
hours. The total burden for applications and recertifications would be 
reduced from 342,000 hours to 256,500 hours. We propose to remove the 
current requirement that the local agency provide a verification of 
certification form to participants moving to another location. This 
would remove the information collection burden of 110 hours for this 
activity.
    Section 247.23, State provision of administrative funds to local 
agencies. The requirement that State agencies request approval to 
retain administrative funds above a specific limit, which is currently 
under Sec.  247.11, would be moved to the proposed Sec.  247.23. We 
propose to allow all State agencies, regardless of whether they are 
involved in storage of commodities, to request approval to retain more 
funds. We do not believe, however, that this will result in an increase 
in the present information collection burden for this requirement.
    Section 247.30, Claims. Under the proposed Sec.  247.30, we propose 
to require that the State or local agency pursue a claim against a 
participant to recover the value of benefits improperly received or 
used if it determines that the participant, or the parent or caretaker 
of the participant, received or used the commodities through fraud. The 
State agency would have to maintain all records regarding claims 
actions taken against participants. Since 7 CFR part 247 and 7 CFR part 
250 do not currently address specific criteria relative to the 
establishment and pursuit of claims against participants, there is 
currently no recordkeeping burden regarding such claims. We estimate 
that State and local agencies would initiate a total of 500 claims 
actions against participants each year. The recordkeeping burden would 
be 5 minutes (0.08 hrs.) for each claims action. The total 
recordkeeping burden for claims would be 40 hours.
    Section 247.34, Management evaluation system. The requirement that 
State agencies perform management evaluations of local agencies, which 
is currently under Sec.  247.21, would be moved to the proposed Sec.  
247.34. We propose to reduce the requirement for State agency on-site 
reviews of local agencies from annual to every two years. Thus, of the 
103 local agencies currently participating, 52 would have to be 
reviewed each year. The total burden for management evaluations would 
be reduced from 480 hours to 416 hours.
    Respondents: State, Local, or Tribal Government; program 
participants; business or other for profit; nonprofit institutions; 
Federal government.
    Total Annual Responses: Current: 917,758; Proposed: 1,126,931.
    Estimate of Burden: Current: 1,154,152; Proposed: 1,066,363.
    The proposed changes in information collection burden for the 
reporting and recordkeeping requirements described above are included 
in the following table.

----------------------------------------------------------------------------------------------------------------
                                                                      Annual         Hours per
                                                                     responses       response       Total hours
----------------------------------------------------------------------------------------------------------------
                            Reporting
Section 247.4 State/local agreements:
    Present.....................................................              60               8             480
    Proposed....................................................              50               2             100
Section 247.6 State Plan/State Plan amendments:
    State Plan:
        Present.................................................              20             100           2,000
        Proposed................................................               1              50              50
    State Plan amendments:
        Present.................................................          Included above under State Plan
        Proposed................................................              35               5             175
Sections 247.8, 247.16 Applications/Recertifications:
    Present.....................................................         684,000            0.50         342,000
    Proposed....................................................         894,000            0.29         256,500
Verification of certification form:
    Present.....................................................           1,325            0.08             110
    Proposed....................................................               0               0               0
Section 247.34 Management reviews:
    Present.....................................................              60               8             480
    Proposed....................................................              52               8             416
 
                          Recordkeeping
 
Section 247.30 Records of participant claims:
    Present.....................................................               0               0               0
    Proposed....................................................             500            0.08              40
          Total
              Present...........................................         917,758  ..............  ..............
              Proposed..........................................       1,126,931  ..............  ..............
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III. Background and Discussion of the Proposed Rule

    This rule proposes to rewrite 7 CFR part 247 in ``plain language.'' 
The proposed plain language format includes a question-and-answer 
structure under each section, and removal of the legalistic style that 
is currently reflected in the regulations. We have increased the number 
of sections to ensure that each section addresses only one specific 
program area. Nevertheless, some current sections have been 
consolidated or deleted. This rule also proposes to amend provisions of 
this part to accomplish several objectives, including:
    (1) A reduction of the paperwork burden for State and local 
agencies, including making the Federal/State agreement and State Plan 
permanent, with amendments submitted as necessary;
    (2) An increase in the flexibility of program operators in 
providing benefits to eligible population groups, including changes in 
the recertification of elderly participants;
    (3) An increase in program accountability, including the 
requirement that State and local agencies initiate claims against 
program participants who improperly obtain benefits as a result of 
intentional misrepresentation;
    (4) Improvements in program service by requiring that, for a 
pregnant woman, each embryo or fetus in utero be counted as a household 
member in determining if the household meets the income eligibility 
standards; and,
    (5) Incorporation of current legislative provisions.
    In the following paragraphs, we describe each section of the 
proposed new 7 CFR part 247, including an explanation of any changes in 
content or format.

Definitions, Section 247.1

    In this proposed section, we propose to include definitions 
relevant to CSFP, which are currently included under Sec.  247.2. We 
propose to remove the definitions of administrative costs, A-90, A-102, 
A-110, categorical ineligibility, FMC 74-4, homebound elderly persons, 
participants, participation, pregnant women, program, Secretary, SFPD, 
and supplemental foods. The meaning of homebound elderly persons, 
participants, participation, pregnant women, and program is obvious to 
any reader. SFPD is the FNS division that formerly administered CSFP. 
Instead of the term categorical ineligibility, we propose to refer 
instead to ineligible population groups. Wherever we refer to 
administrative costs, its meaning is clear. The numbered circulars are 
all obsolete, and have been replaced by other circulars or incorporated 
into Federal regulations, as cited in regulatory text. Wherever ``the 
Secretary'', or ``supplemental foods'', appears in current regulations 
we propose to refer instead to ``the Department'', and to 
``commodities'', respectively.
    The seven definitions that we propose to add include certification 
period, commodities, CSFP, 7 CFR part 250, 7 CFR part 3016, 7 CFR part 
3019, and 7 CFR part 3052. A definition of certification period makes 
clear the time span of program eligibility before a review of 
eligibility is required. Definitions of commodities and CSFP simply 
ensure that readers are aware of the purpose of the foods distributed 
in the program and the program acronym. 7 CFR part 250 contains the 
regulations for donation of foods in USDA food distribution programs. 7 
CFR parts 3016 and 3019 are the Departmental regulations for grants and 
cooperative agreements with State, local, and Indian tribal 
governments, and with nonprofit organizations, respectively. 7 CFR part 
3052 is the Departmental regulation for audits of States, local 
governments, and nonprofit organizations. All of these regulations are 
referred to in this proposed part, and their inclusion in the 
definitions would help to ensure that readers understand their 
applicability to CSFP.
    The definitions that we propose to revise include caseload, 
caseload cycle, certification, distributing agency, dual participation, 
elderly persons, fiscal year, local agency, nonprofit agency, 
postpartum women, State agency, and State agency plan of program 
operation and administration. Currently, the caseload cycle begins on 
December 1 or 30 days after enactment of appropriations legislation for 
the full fiscal year, and extends through November 30. We propose to 
establish January 1 through December 31 as the caseload cycle. This 
would ensure that the caseload cycle extends for a 12-month period even 
in the event of late passage of appropriations legislation. However, if 
enactment of a full year's appropriation has been delayed, it may be 
necessary to assign caseload on a tentative basis to reflect the amount 
of funds available to support the program under a Continuing 
Resolution(s). The revised definition of caseload establishes January 1 
through December 31 as the caseload cycle, and includes reference to 
the caseload cycle rather than the present reference to service over a 
``specified period of time''.
    We propose to define nonprofit agencies as private agencies or 
organizations that have tax-exempt status under 26 U.S.C. 501 of the 
Internal Revenue Code (IRC), or that have applied for tax-exempt status 
with the Internal Revenue Service (IRS). A discussion of the 
eligibility of nonprofit agencies for participation in CSFP, including 
the needed tax-exempt status, is contained under the proposed Sec.  
247.7.
    We propose to delete the definition of distributing agency and to 
refer instead to the subdistributing agency, so that definitions of 
distributing agency and subdistributing agency will be consistent with 
corresponding provisions in 7 CFR part 250. We propose to define 
subdistributing agency as an agency that has entered into an agreement 
with the State agency to perform functions that would otherwise be 
performed by the State, such as entering into agreements with eligible 
recipient agencies under which commodities are made available, ordering 
commodities and/or making arrangements for the storage and delivery of 
such commodities on behalf of eligible recipient agencies. As in 7 CFR 
part 250, the definition of subdistributing agency does not include an 
agency that is only responsible for providing warehousing space or 
making deliveries to specified agencies. We also propose to remove the 
requirement that a distributing agency (i.e., subdistributing agency 
under this proposed rule) sign an agreement with the Department as well 
as with the State agency. This is described in more detail under 
Agreements. Under this proposal, we would also eliminate the 
description of duties of local agencies currently included in the 
definition of local agency, since this information is more 
appropriately included in the regulatory text, and include Indian 
tribal organizations under the definition. Finally, we propose to 
revise the definitions of certification, dual participation, elderly 
persons, fiscal year, postpartum women, State agency, and State Plan 
for clarification purposes.

The Purpose and Scope of CSFP, Section 247.2

    In this proposed section, we propose to describe the purpose and 
scope of CSFP, which are currently described under Sec.  247.1. In 
paragraph (a), we propose to ask and answer the question, How does CSFP 
help participants? We describe, as in current regulations, the purpose 
of CSFP as the distribution of nutritious foods, and provision of

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nutrition education, to low-income pregnant, postpartum, and 
breastfeeding women, infants, children ages 1 through 5, and the 
elderly. We also propose to describe the monthly distribution of foods 
to participants based on guide rates established by FNS, and to list 
some of the foods characteristically included in the food packages. A 
description of the distribution of foods to participants is currently 
included under Sec.  247.7(c).
    Under paragraph (b), How many persons may be served in CSFP?, we 
propose to provide basic information on caseload, and the caseload 
cycle, to help the reader understand the scope of the program.

Administering Agencies, Section 247.3

    Currently, Sec.  247.3 describes the responsible CSFP administering 
agencies at the Federal, State, and local levels, and the requirements 
for the State agency to submit a State Plan and enter into agreements 
with the Department and other agencies. We propose to include, in this 
proposed Sec.  247.3, the description of responsible administering 
agencies and the Federal requirements that apply to administration of 
CSFP. We propose to include required agreements in the proposed Sec.  
247.4 and State Plan requirements in the proposed Sec.  247.6.
    In paragraph (a) of this proposed Sec.  247.3, we propose to 
include a description of the responsible administering agencies, and to 
clarify that the State agency may delegate to a subdistributing agency 
(e.g., another State agency or a nonprofit organization) the 
responsibility for storage and distribution of commodities, and other 
program functions. We also propose to include in this paragraph the 
authority for local agencies and subdistributing agencies to delegate 
responsibility for specific program functions (e.g., food distribution 
or storage) to another agency, with the State agency's approval. This 
authority is currently included under Sec.  247.6(c).
    While the State agency is provided a great deal of flexibility in 
administering the program, and in selecting other agencies to perform 
specific program functions, the State agency must itself perform a few 
functions. Thus, in paragraph (b) of this proposed section, we propose 
to make it clear that the State agency may not delegate the 
responsibility for establishing eligibility requirements for which it 
has options (such as income limits for women, infants, and children), 
or for conducting management reviews of local agencies. Through 
management reviews, the State agency determines if the program is being 
properly administered, and if corrective actions are needed.
    In paragraph (c) of this proposed section, we propose to include 
the requirement that State, subdistributing, and local agencies 
administer the program in accordance with the provisions of this part, 
and with the provisions of 7 CFR part 250 of this chapter, except where 
they are inconsistent with this part. The current references to 
specific circulars in Sec.  247.3 are deleted, since they are all 
obsolete.

Agreements, Section 247.4

    Currently, the requirement that State agencies enter into an annual 
agreement with the Department to operate the program is included under 
Sec.  247.3, as is the requirement that State agencies enter into 
agreements with distributing agencies. The requirement that State and 
local agencies enter into agreements, and the required contents of 
those agreements, are currently included under Sec.  247.6. Also 
currently under Sec.  247.6 is the requirement that local agencies and 
other agencies selected to perform specific program functions sign an 
agreement. We propose to include all agreement requirements in this 
proposed Sec.  247.4.
    In paragraph (a), we propose to include all of the current required 
agreements between administering agencies. However, we propose to 
remove the present requirement that, in addition to the agreement with 
the State agency, the subdistributing agency (currently referred to as 
the distributing agency) must also sign an agreement with FNS. Since 
the State agency is responsible for the administration of the program 
at the State level, an agreement between the subdistributing agency and 
FNS serves no real purpose. Also in this paragraph, we propose to 
clarify that the Federal-State agreement utilized is Form FNS-74.
    Currently, a list of the required contents of agreements between 
State and local agencies is included under Sec.  247.6(b). 
Additionally, under Sec.  247.6(c), the agreement between the local 
agency and another agency must state the program responsibilities of 
the other agency. In paragraph (b) of this proposed section, we propose 
to include the required contents of all agreements, with the exception 
of the Federal-State agreement (which is a standard form). We propose 
to require that all agreements contain the following:
    (1) An assurance that each agency will administer the program in 
accordance with the provisions of this part and with the provisions of 
7 CFR part 250, unless they are inconsistent with the provisions of 
this part.
    (2) An assurance that each agency will maintain accurate and 
complete records for a period of three years from the end of the fiscal 
year to which they pertain, or, if they are related to unresolved 
claims actions, audits, or investigations, until those activities have 
been resolved.
    (3) A statement that each agency receiving commodities for 
distribution is responsible for any loss resulting from improper 
distribution, or improper storage, care, or handling of commodities.
    (4) A statement that each agency receiving program funds is 
responsible for any misuse of these funds.
    (5) A description of the specific functions that the State, 
subdistributing or local agency is delegating to another agency.
    (6) A statement that the agreement may be terminated by either 
party upon 30 days written notice.
    In paragraph (c) of this proposed Sec.  247.4, we propose to list 
specific requirements for agreements between State and local agencies, 
which are in addition to the requirements of paragraph (b) of this 
section. We propose to require that the agreement between State and 
local agencies include:
    (1) An assurance that the local agency will provide nutrition 
education as required under 7 CFR part 247.
    (2) An assurance that the local agency will provide information to 
participants on the importance of health care and on other health, 
nutrition, and public assistance programs, and make referrals as 
appropriate, as required under 7 CFR part 247.
    (3) An assurance that the local agency will distribute commodities 
in accordance with 7 CFR part 247, and with the approved food package 
guide rate.
    (4) An assurance that the local agency will take steps to prevent 
and detect dual participation.
    (5) The names and addresses of all certification, distribution, and 
storage sites under the jurisdiction of the local agency.
    In paragraph (d), we propose to describe the duration of all 
required agreements. We propose to make the Federal-State agreement 
permanent, and amended at the initiation of State agencies or at the 
request of FNS, instead of annual. All amendments must be approved by 
FNS. We also propose to clarify that the duration of agreements between 
the State agency and local or subdistributing agencies is established 
by the State agency. Similarly, we propose to clarify that the State 
agency may establish, or permit

[[Page 62169]]

the local or subdistributing agency to establish, the duration of 
agreements between the local or subdistributing agency and other 
agencies. Current regulations do not address the duration of these 
agreements.

State and Local Agency Responsibilities, Section 247.5

    Proposed Sec.  247.5 includes an outline of the major 
responsibilities of State and local agencies in program administration. 
Since current regulations do not include such an outline, it is 
necessary to read through all of 7 CFR part 247 to determine the major 
responsibilities of the State or local agency in the program. This 
section is not, however, meant to be a comprehensive list of all State 
or local agency responsibilities. We propose to break out, in three 
separate paragraphs, the major responsibilities shared by the State and 
local agency, and specific responsibilities of the State agency and 
those of the local agency. We are not proposing to impose any new 
responsibilities on State or local agencies in this section. While some 
of the responsibilities listed are not specifically discussed in 
current regulations, they are inherent in the administration of the 
program (e.g., ordering commodities and maintaining caseload limits).

State Plan, Section 247.6

    Currently, under Sec.  247.3(a), the State agency is required to 
submit a State Plan on an annual basis and, under Sec.  247.5, must 
submit a State Plan to initiate or continue program operations and to 
request additional caseload to expand service to women, infants, 
children, and elderly persons. Other State Plan requirements are also 
included under the current Sec.  247.5. We propose to include all State 
Plan requirements in this proposed Sec.  247.6. In paragraph (a), we 
propose to describe the purpose, general format, and duration of the 
State Plan. We propose to make the State Plan permanent, rather than 
annual, with amendments submitted at the State agency's initiative, or 
at FNS request, and with all amendments subject to FNS approval. In 
conjunction with this proposal, we also propose to require that the 
State agency submit a State Plan to initiate the program, while 
removing the requirement for continuing program operations. While a 
State Plan to initiate the program must continue to describe the 
caseload needed to serve eligible women, infants, children, and the 
elderly, we propose to require that requests for additional caseload be 
made in amendments to the Plan, as described under paragraph (d) of 
this section.
    We also propose to remove the language which states that FNS will 
assign caseload in approving the State Plan submission, and which 
describes the factors that determine the caseload assignment. We 
propose to include requirements and procedures for caseload assignment 
under the proposed Sec.  247.21. We retain the State agency's option to 
submit the State Plan in the format provided in FNS guidance, in an 
alternate format, or in combination with other documents required by 
Federal regulations. However, we propose to remove the requirement that 
FNS receive advance notification of submission in an alternate format. 
We propose to encourage the State agency to collaborate with the State 
agency administering the Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC) in development of the State Plan 
(collaboration with the State WIC agency is required in developing a 
plan to prevent and detect dual participation). Likely areas of 
collaboration include plans for serving women, infants, and children, 
program outreach, and nutrition education. These recommendations for 
collaboration with the State WIC agency would incorporate policy 
guidance provided to State CSFP and WIC agencies on August 31, 2000. As 
at present, the State Plan must be signed by the State agency official 
responsible for program operations.
    In paragraph (b) of this proposed section, entitled When must the 
State Plan be submitted?, we propose to retain the current requirement 
that the State agency submit the State Plan by August 15, to receive 
approval by the beginning of the fiscal year. We also include unchanged 
the requirement that FNS provide written approval or disapproval within 
30 days of the receipt of the Plan or amendments, and must indicate the 
reason for disapproval. FNS must notify the State agency within 15 days 
if further information is required to make a decision on the Plan. We 
propose to add, in paragraph (b), that the approval of the State Plan 
or amendments is a prerequisite for the assignment of caseload and the 
allocation of administrative funds but does not ensure that caseload 
and funds will be provided. Program resources are dependent upon 
appropriations, which often become available later in the year. As at 
present, we propose to include the requirement that a copy of the State 
Plan be available for public inspection at the State agency.
    In paragraph (c) of this proposed section, we propose to include 
the required contents of the State Plan. In the interest of reducing 
the paperwork burden for State agencies, we propose to remove several 
elements currently required to be included in the State Plan. We do not 
believe a description of these activities need be included in the State 
Plan, as Federal regulations sufficiently describe the requirements and 
the means by which the State agency must comply with them. We propose 
to remove the following elements:
    (1) The names and addresses of all certification, food 
distribution, and storage sites under the jurisdiction of the local 
agency.
    (2) A description of plans for requesting program expansion. Since 
the State Plan would be a one-time submission, expansion, or additional 
caseload requests, and plans for opening new sites, would be made in an 
amendment to the State Plan, as described previously.
    (3) The requirement that the plan for nutrition education services 
provide for participant input and an evaluation component.
    (4) A description of the manner in which the State agency plans to 
monitor local agencies.
    (5) A description of plans to involve local agencies and other 
parties in the development of the Plan for the next fiscal year. Again, 
we are proposing that the Plan no longer be developed and submitted 
each year.
    (6) A description of the financial management system that will be 
utilized.
    (7) A description of the procedures for resolving commodity 
complaints.
    (8) A description of the audit procedures.
    (9) A description of procedures used to meet civil rights 
requirements.
    (10) A description of the fair hearing procedures for participants. 
Since the procedures that the State agency must follow are detailed in 
the regulations, it is not necessary for the State agency to describe 
them in the Plan.
    (11) A description of plans to initiate or expand service to 
elderly persons, including the means by which the homebound elderly 
will be served. We propose to retain only the requirement to address 
the means by which the homebound elderly will be served. Until 1986, 
the elderly could participate only under three pilot sites. Since 
general service to the elderly has long since become a standard part of 
the program, it is no longer necessary to specifically describe plans 
to serve them.
    Currently, the State agency must describe in the State Plan the 
manner in which foods are distributed to local agencies and to 
participants. We propose to revise this to require that the

[[Page 62170]]

State agency describe the system of storage and distribution of 
commodities in the State Plan. Because of the importance of the proper 
storage of commodities and their safe and timely distribution to local 
agencies, we believe it is important for the State agency to describe 
the means by which it will meet these responsibilities. We also propose 
to require the State agency to include a description of the standards 
it will use in determining if the pursuit of a claim against a 
participant is cost-effective, in accordance with the proposed Sec.  
247.30(d).
    In paragraph (d) of this proposed section, entitled When must the 
State agency submit amendments to the State Plan?, we propose to 
include the requirement that the State agency submit amendments to FNS 
for approval if it desires to amend the State Plan. As at present, the 
State agency may submit amendments at any time during the fiscal year. 
FNS may also require that the State Plan be amended to reflect changes 
in Federal law or policy. This change is necessary since the State Plan 
would be made permanent under this rule. We also propose to include the 
requirement that, if a State agency would like to receive additional 
caseload for the caseload cycle beginning the following January 1, it 
must submit an amendment to the Plan that conveys the request for 
additional caseload by November 5. The State agency must also describe 
any plans for serving women, infants, children, and the elderly at new 
sites in this submission. FNS currently allows State agencies until 
early November to submit additional caseload requests, as it allows the 
State agency sufficient time to review complete participation figures 
for the previous fiscal year, which are not available until October. 
The State agency cannot meaningfully request additional caseload until 
it knows what its base caseload will be, and its base caseload depends 
on its actual participation during the past fiscal year. FNS action on 
the State agency's request for additional caseload is part of the 
caseload assignment process, as described under the proposed Sec.  
247.21.

Selection of Local Agencies, Section 247.7

    Currently, under section 247.6, a local agency must submit a 
written application to the State agency that includes sufficient 
information to allow the State agency to determine its eligibility. We 
propose to retain this requirement in paragraph (a) of this proposed 
Sec.  247.7, entitled How does a local agency apply to participate in 
CSFP? We propose to clarify that the information submitted must 
describe how the local agency will operate the program. We also propose 
to require that, for nonprofit agencies, the application must include 
the tax-exempt status of the agency.
    Under current regulations, a nonprofit agency must have tax-exempt 
status under 26 U.S.C. 501 of the IRC. However, under 26 U.S.C. 
501(c)(3) of the IRC, as amended since the current regulatory 
requirement was established, organizations are automatically tax-exempt 
if they are organized or operated exclusively for religious purposes. 
Thus, we propose to clarify that such nonprofit agencies already have 
the tax-exempt status required for participation in CSFP. Additionally, 
under other USDA food distribution programs, nonprofit organizations 
that have applied for tax-exempt status with the IRS, and are moving 
toward compliance with the requirements for recognition of tax-exempt 
status, are eligible to participate. We propose to include nonprofit 
agencies with this provisional tax-exempt status as eligible local 
agencies in CSFP as well, and to also propose conditions used in other 
programs to determine the continued participation of these 
organizations in CSFP. These conditions are described below, under 
paragraph (c).
    We propose to state, in paragraph (a) of this proposed section, 
that, to be eligible to participate in CSFP, a nonprofit agency must 
have tax-exempt status under 26 U.S.C. 501 of the IRC, or must have 
applied for tax-exempt status with the IRS, and be moving towards such 
status. We propose to indicate that organizations organized or operated 
exclusively for religious purposes are automatically tax-exempt under 
26 U.S.C. 501(c)(3) of the IRC. We also propose to indicate that 
organizations required to obtain tax-exempt status must provide 
documentation from the IRS that they have obtained such status, or have 
applied for it.
    In paragraph (b) of this proposed section, entitled On what basis 
does the State agency make a decision on the local agency's 
application?, we propose to include the basic guidelines that the State 
agency must consider in making a decision on approval or denial of the 
local agency's application to participate in CSFP. These guidelines do 
not constitute an additional requirement. Their inclusion in these 
regulations is simply meant to assist State agencies--particularly new 
State agencies--in choosing which local agencies to participate. The 
criteria are:
    (1) The ability of the local agency to operate the program in 
accordance with Federal and State requirements.
    (2) The need for the program in the projected service area of the 
local agency.
    (3) The resources available (caseload and funds) for initiating a 
program in the local area.
    (4) For nonprofit agencies, the tax-exempt status, with appropriate 
documentation.
    In paragraph (c) of this proposed Sec.  247.7, we propose to 
include the actions that the State agency must take if an agency that 
has been approved for CSFP participation is subsequently denied tax-
exempt status by the IRS, or does not obtain this status within a 
certain period of time. We propose that, if a participating agency's 
application for tax-exempt status is subsequently denied by the IRS, 
the agency must immediately notify the State agency, which then must 
immediately terminate their participation in CSFP. If, after 180 days 
of the organization's approval for participation, the agency has not 
obtained, and submitted, documentation of its tax-exempt status, the 
State agency must terminate the agency's participation in CSFP until 
such time as recognition of tax-exempt status is obtained. However, the 
State agency may grant an extension of 90 days to an agency if the 
agency can demonstrate that its inability to obtain tax-exempt status 
within the 180-day period is due to circumstances beyond its control.
    In paragraph (d) of this proposed section, we propose to indicate 
how much time the State agency has to act on the local agency's 
application to participate in CSFP. We propose to extend the period of 
time for deciding on approval or denial of the local agency's 
application from 30 days to 60 days. With a longer period of time for 
review, the State agency would be better able to make a determination 
of the local agency's eligibility to participate, and to consider other 
applicable criteria as described in paragraph (b) of this proposed 
section. We retain the requirement that a notification of denial of the 
application be in writing and that the State agency provide for an 
appeal of the denial, in accordance with the requirements of the 
proposed Sec.  247.35.
    We propose to remove current requirements that the State agency 
return the application to the local agency if a denial is based on lack 
of funds, and justify the need for approval of a local agency in an 
area already served by the WIC Program. We do not believe that the 
return of the application serves any useful purpose. Although both WIC 
and CSFP overlap somewhat

[[Page 62171]]

in the groups that they serve, the differences (especially in CSFP 
service to the elderly) are sufficient to justify the existence of both 
programs in the same area. However, under the proposed Sec.  247.6, 
State agencies are encouraged to coordinate with the WIC State agency 
in formulating plans to serve women, infants, and children in common 
areas of service.

Individuals Applying To Participate in CSFP, Section 247.8

    Currently, the process of applying for program benefits, 
determination of eligibility, and participant rights and 
responsibilities are included under Sec.  247.7, entitled 
``Certification''. We propose to split up these related topics into 
several sections for the sake of clarity. In this proposed Sec.  247.8, 
we propose to include the specific information applicants must provide 
on the application to allow the local agency to make a determination of 
eligibility. This information is currently listed under Sec.  247.7(d). 
Present regulations require that information be recorded on a 
``certification form'', which we refer to as the application. The 
information must include, at a minimum, the applicant's name and 
address and other information necessary to make a determination of 
eligibility. Although ``other information'' must necessarily include 
data necessary to determine household income eligibility, and the 
applicant's age, or pregnancy, as applicable, we propose to 
specifically list the required information for the sake of clarity. We 
also propose to include in this section the requirement that each 
applicant present some form of identification, which is currently 
required under Sec.  247.7(j)(4).
    We propose to retain the requirement that the applicant, or adult 
parent or guardian of the applicant, sign the application form beneath 
a pre-printed statement attesting to the truthfulness of the 
information provided, and the applicant's liability to federal 
prosecution for deliberate misrepresentation. Presently, the statement 
must be read by, or to, the applicant (or adult parent or guardian) 
before signing. However, we propose to include in this statement the 
notification that information provided may be shared with other 
organizations to prevent dual participation. With the consent of the 
participant, this information may also be shared with other 
organizations to assist in outreach or in eligibility determination for 
other public assistance programs. This sharing of information would 
help to ensure that program applicants are aware of the benefits 
provided by other public assistance programs. These proposed changes 
have been included in Sec.  247.36.

Eligibility Requirements, Section 247.9

    Currently, the eligibility requirements for CSFP, including the 
eligible population categories in the program, are listed under Sec.  
247.7(a). We propose to include the eligibility requirements and 
eligible population groups in this proposed Sec.  247.9. In paragraph 
(a), we propose to include the current eligible population groups, with 
changes only to improve clarity. For example, we propose to list each 
population group in a numbered format, and to describe each group 
fully, as in the definitions listed under the proposed Sec.  247.1. 
This avoids the need for the reader to refer to the definitions to see 
that, under CSFP, children means persons who are at least one year of 
age, but have not reached their sixth birthday.
    In paragraph (b), we propose to include the income eligibility 
requirements for women, infants, and children. Currently, in order to 
be eligible for CSFP, women, infants, and children must have income 
eligibility for local benefits under existing Federal, State, or local 
food, health, or welfare programs for low-income persons. Although 
current regulations contain no parameters with regard to women, 
infants, and children, State agencies have established 185 percent of 
the Federal Poverty Income Guidelines as the income eligibility 
standard for this group, as this conforms to the upper limit used in 
the Special Supplemental Nutrition Program for Women, Infants, and 
Children (WIC). For the purpose of clarification, we propose to 
require, in paragraph (b)(1) of this proposed section, that the State 
agency establish household income guidelines for women, infants, and 
children that are at or below 185 percent of the Federal Poverty Income 
Guidelines, but not below 100 percent of these guidelines. However, in 
conformance with the WIC Program, we propose to require that the State 
agency accept as income-eligible, regardless of actual income, any 
applicant who is: (1) Certified as eligible to receive food stamps 
under the Food Stamp Act of 1977, Temporary Assistance for Needy 
Families (TANF) under Part A of Title IV of the Social Security Act, or 
Medical Assistance (i.e., Medicaid) under Title XIX of the Social 
Security Act; or, (2) a member of a family that is certified eligible 
to receive assistance under TANF, or a member of a family in which a 
pregnant woman or an infant is certified eligible to receive assistance 
under Medicaid. We also propose, in paragraph (b)(2), to allow the 
State agency to consider women, infants, and children participating in 
another Federal, State, or local food, health, or welfare program as 
automatically eligible for CSFP if the income eligibility guidelines 
for the program are equal to or lower than the established CSFP 
guidelines.
    We also propose, in paragraph (b)(3), to require that, for a 
pregnant woman, each embryo or fetus in utero be counted as a household 
member in determining if the household meets the income eligibility 
standards for the program. If, for example, a pregnant woman with a 3-
year old child applied for CSFP benefits for herself and her child, the 
local agency would consider them a household of three members, and not 
two, in determining their eligibility. This provision is already 
included as part of eligibility criteria in the WIC Program, and CSFP 
State agencies have been authorized to implement it by policy 
memorandum.
    Currently, elderly persons must have household income at or below 
130 percent of the Federal Poverty Income Guidelines published annually 
by the Department of Health and Human Services. However, elderly 
persons certified before September 17, 1986, are subject to the 
eligibility criteria in effect at the time of their certification. On 
the date referenced, FNS published an interim rule in the Federal 
Register at 51 FR 32895 to implement legislation allowing low-income 
elderly persons at all CSFP sites to be served, if resources remained 
after providing benefits to all eligible women, infants, and children 
at the sites. The rule also established the current income eligibility 
guidelines to ensure that the neediest elderly persons received 
benefits. Before that date, elderly persons were served only at three 
pilot sites in New Orleans, Louisiana, Detroit, Michigan, and Des 
Moines, Iowa. Elderly participants in the pilots were subject to the 
same income eligibility criteria used for women, infants, and children. 
We propose to include the income eligibility requirements for elderly 
persons in paragraph (c) of this proposed section, without change from 
the current requirements.
    Each year, usually in February, the Department of Health and Human 
Services publishes the adjusted Federal Poverty Income Guidelines in 
the Federal Register. Currently, FNS publishes notification in the 
Federal Register each year of the adjusted income guidelines by 
household size, including adjustments for 185 percent and 130 percent 
of the poverty level, as applicable for specific FNS programs. Although 
CSFP regulations do not make any reference to it, CSFP State and local

[[Page 62172]]

agencies are currently notified of the adjusted guidelines for elderly 
persons annually. Prior to 2002, this notification was provided through 
publication of a separate notice. However, in order to expedite the 
implementation of the guidelines, in 2002 we provided notification of 
the adjusted guidelines by memorandum. We propose to include, in 
paragraph (d) of this proposed section 247.9, reference to the 
notification, by memorandum, of the annual adjustment of the income 
guidelines by household size, and the effective date of the 
adjustments. The notification will provide the adjusted guidelines for 
185 percent, 130 percent, and 100 percent, of the poverty guidelines. 
We propose to require that the adjusted guidelines be implemented for 
the elderly immediately upon receipt of the memorandum, in order to 
minimize the time gap between the adjustment of the guidelines and the 
cost-of-living adjustment in Social Security benefits, which is made in 
January. This requirement would help to ensure that elderly persons 
receiving Social Security benefits do not become temporarily ineligible 
for CSFP. We propose to require that the adjusted guidelines be 
implemented for women, infants, and children at the same time that the 
State WIC agency implements the adjusted guidelines for WIC 
eligibility. These implementation dates are current practice in CSFP, 
even though implementation of adjusted guidelines is not currently 
addressed in regulations.
    In paragraph (e) of this proposed section 247.9, we propose to more 
clearly indicate how income is defined and considered in determining 
eligibility for CSFP. In making this clarification, we propose to 
include the following WIC regulatory provisions:
    (1) Income means gross income before deductions for such items as 
income taxes, employees' social security taxes, insurance premiums, and 
bonds.
    (2) The State agency may exclude from consideration the following 
sources of income listed under 7 CFR 246.7(d)(2)(iv):
    (i) Any basic allowance for housing received by military services 
personnel residing off military installations.
    (ii) The value of inkind housing and other inkind benefits.
    (3) The State agency must exclude from consideration all income 
sources excluded by legislation, and which are listed in 7 CFR 
246.7(d)(2)(iv)(C). FNS notifies State agencies of any new forms of 
income excluded by statute through program policy memoranda.
    (4) The State agency may allow local agencies to consider the 
household's average income during the previous 12 months and current 
household income to determine which more accurately reflects the 
household's status. In instances in which the State makes the decision 
to permit local agencies to determine a household's income in this 
manner, all local agencies must comply with the State's decision and 
apply this method of income determination in situations in which it is 
warranted.
    Currently, the CSFP regulations do not define income, or list 
income exclusions. Thus, it is up to the State or local agency to 
determine how they are to define and consider income in determining 
eligibility for CSFP. Based on a review of State Plans, we believe that 
gross income has generally been used in eligibility determination. We 
also believe that the WIC income exclusions listed have generally been 
used, as most of them are established by law. However, the lack of 
guidance in regulations or policy has resulted in some questions and 
uncertainty. We believe that adoption of these proposals would help to 
alleviate the confusion in how income should be considered in CSFP, and 
would not have a significant impact on participation.
    Annual cost-of-living increases in Social Security benefits usually 
take effect in January. Since the Department of Health and Human 
Services does not usually adjust the Federal Poverty Income Guidelines 
until February, these increases make some elderly participants 
ineligible for benefits for a few months. Providing the option of 
looking at average income over the previous 12 months, as well as 
present income, would allow these elderly participants to remain on the 
program, instead of being discontinued for a few months each year. 
Similar options are already available for WIC, see 7 CFR 
246.7(d)(2)(vii), and school lunch, see 7 CFR 245.2(a)(a-2) free and 
reduced price eligibility determinations.
    Currently, under Sec.  247.7(a), the State has the option to 
establish ``nutritional risk'' criteria for CSFP eligibility, and to 
require that individuals reside within the local CSFP service area at 
the time of application. Under paragraph (f) of this proposed section, 
entitled What other options does the State agency have in establishing 
eligibility requirements for CSFP?, we propose to include these options 
substantially unchanged but reworded in the interest of clarity. As at 
present, the State agency may not require that an individual reside in 
the area for any fixed period of time.

Distribution and Use of CSFP Commodities, Section 247.10

    Currently, Sec.  247.7(c) describes the monthly issuance of CSFP 
foods to participants, and allows local agencies the option of 
distributing a two-month supply of foods every other month. We propose 
to include this option under this proposed Sec.  247.10. However, we 
propose to remove the current requirement that the local agency 
choosing to distribute foods every other month provide the participant 
the option of continuing to receive foods on a monthly basis. Although 
the local agency may provide this option, we believe that the 
requirement to do so may place an undue burden on the local agency. We 
propose to include in this section the requirement that the local 
agency require each participant, or participant's proxy, to present 
some form of identification before receiving CSFP commodities. This 
requirement is currently under Sec.  247.7(j)(4). We also propose to 
include in this section current restrictions in the distribution and 
use of CSFP commodities that are presently contained in Sec. Sec.  
247.7(h) and 247.8(e). As at present, State and local agencies may not 
require, or request, that participants make any payments, or provide 
any materials or services in connection with the distribution of CSFP 
commodities, and may not use commodities to further the political 
interests of any person or party. Also, CSFP commodities may be used 
for nutrition education for CSFP participants, but may not be used for 
outreach, refreshments, or for any purpose other than distribution to 
CSFP participants.

Applicants Exceed Caseload Levels, Section 247.11

    Currently, under Sec.  247.7(b), if all caseload slots are filled, 
the local agency is required to maintain waiting lists of applicants 
and, when caseload slots open up, provide benefits to eligible persons 
on the waiting list in a specific order of priority. This order of 
priority does not apply, however, to the caseload assigned to the 
original elderly pilot projects. The current order of priority in 
service is:
    (1) Pregnant women, breastfeeding women, and infants.
    (2) Children ages 1 through 3.
    (3) Children ages 4 and 5.
    (4) Postpartum women.
    (5) Elderly persons.
    The local agency must include on the waiting list the date of 
application, the population group of the applicant, and information 
necessary to be able to contact the applicant if caseload space

[[Page 62173]]

becomes available. Applicants must be notified of their placement on a 
waiting list within 20 days of their request for benefits.
    As described in the proposed Sec.  247.15, we propose to require 
that applicants be notified of their placement on a waiting list, or 
their ineligibility or eligibility for benefits, within 10 days from 
the date of application. The shorter time period is more reasonable for 
applicants seeking food assistance. We also propose to remove the 
current provision that protects the original elderly pilot caseload 
from the designated priority structure. The continued participation of 
the original elderly pilot participants, who are now few in number, is 
no longer threatened by limited caseload, since the administering local 
agencies have a much larger caseload assignment than they did 15 years 
ago.

Rights and Responsibilities, Section 247.12

    Currently, under Sec.  247.7, the local agency must inform the 
applicant of certain rights and responsibilities in CSFP. We propose to 
include the most basic of these rights and responsibilities, listed 
below, in this proposed Sec.  247.12. In paragraph (a), which includes 
applicant rights, we propose to expand the right to receive benefits 
without discrimination to include age, disability, and sex, as well as 
race, color, and national origin, in accordance with current laws. The 
rights listed include:
    (1) Program standards will be applied without discrimination by 
race, color, national origin, age, disability, or sex.
    (2) The local agency will provide notification of a decision to 
deny or terminate CSFP benefits, and of an individual's right to appeal 
this decision by requesting a fair hearing.
    (3) The local agency will make nutrition education available to all 
adult participants, and to parents or guardians of infant and child 
participants, and will encourage them to participate.
    (4) The local agency will provide information on other nutrition, 
health, or assistance programs, and make referrals as appropriate.
    In paragraph (b), which includes applicant responsibilities, we 
propose to expand the information that must be provided to applicants 
to include the prohibition on dual participation, and the possibility 
of a claim against an individual who receives benefits improperly as a 
result of dual participation or other program violation, in accordance 
with provisions under the proposed Sec.  247.30, which addresses 
claims. We also propose to add that the applicant must be informed that 
any changes in household income or composition must be reported within 
10 days after the change becomes known to the household. We believe 
that this will aid in deterring dual participation and submission of 
fraudulent information. The information that must be provided includes:
    (1) Dual participation is not permitted.
    (2) Improper receipt of CSFP benefits as a result of dual 
participation or other program violations may lead to a claim against 
the individual to recover the value of the benefits, and 
disqualification from CSFP.
    (3) Participants must report changes in income or household 
composition within 10 days after the change becomes known to the 
household.
    We propose to include other applicant or participant rights 
currently listed under Sec.  247.7 in separate sections under 
notification requirements, provisions for non-English speakers, and 
other public assistance programs. The breakout of these provisions into 
separate sections is done simply to increase clarity.

Provisions for Non-English or Limited English Speakers, Section 247.13

    Currently, under Sec. Sec.  247.7(e) and 247.19(b), if a 
significant proportion of the population in an area is composed of non-
English or limited English speaking persons with a common language, 
State and local agencies are required to inform such persons of their 
rights in the program, and to ensure that other program information, 
except application forms, is provided, in an appropriate language. 
Additionally, the State agency must ensure that bilingual staff members 
or interpreters are available to serve these persons. We propose to 
consolidate these two related provisions of current regulations in this 
proposed Sec.  247.13. We also propose to clarify that State and local 
agencies must inform such persons of their responsibilities, as well as 
their rights in the program, as listed in the proposed Sec.  247.12, in 
an appropriate language.

Other Public Assistance Programs, Section 247.14

    Currently, under Sec.  247.7(f), the local agency is required to 
advise participants of the importance of receiving health care, the 
types of health services available, and their location. Additionally, 
section 1771(e) of the Food, Agriculture, Conservation, and Trade Act 
of 1990, Public Law 101-624, amended the Agriculture and Consumer 
Protection Act of 1973 (Pub. L. 93-86) to mandate that local agencies 
provide participating pregnant women, women with infants and children, 
and elderly persons with written information on specific programs that 
may affect their health, nutrition, or general welfare. This statutory 
provision has been implemented by policy memorandum but has not been 
included in the regulations. We propose to combine these regulatory and 
legislative requirements in this proposed Sec.  247.14.
    Under paragraph (a), we propose to include the specific programs 
contained in the law that apply to women, infants and children. For 
these applicants, the local agency must provide written information 
about Medicaid (42 U.S.C. 1396 et seq.), the Food Stamp Program (7 
U.S.C. 2011 et seq.), the Temporary Assistance for Needy Families 
(TANF) program under part A of Title IV of the Social Security Act (42 
U.S.C. 601 et seq.)(SSA), and the child support enforcement program 
established under part D of Title IV of the SSA (42 U.S.C. 651 et 
seq.). As required by the law, the State agency must provide local 
agencies with materials showing the income standards utilized in the 
Medicaid Program (42 U.S.C. 1396 et seq.). In addition to these 
programs, we propose to require also that the local agency provide 
information on the WIC Program, to allow individuals eligible for both 
CSFP and WIC to choose the program in which they wish to participate. 
The local agency must also make clear that an individual may not 
participate in both CSFP and WIC simultaneously. Local agencies must 
also make referrals to these programs, as appropriate.
    In paragraph (b), we propose to include the programs referred to in 
the law that apply to the elderly. For these applicants, the local 
agency must provide written information on the Food Stamp Program, and 
supplemental security income and medical benefits provided under Title 
XVI (42 U.S.C. 1381 et seq.) and Title XIX (42 U.S.C. 1396 et seq.) 
(including medical assistance provided to a qualified medicare 
beneficiary--as defined in section 1905(p) (42 U.S.C. 1396d(5)) of the 
SSA. Local agencies must also make referrals to these programs, as 
appropriate.
    Currently, Sec.  247.23(a) states that the value of CSFP benefits 
may not be considered as income or resources in other public assistance 
programs, or for any purpose under Federal, State or local laws. We 
propose to include this statement, substantially unchanged, in 
paragraph (c) of this proposed Sec.  247.14.

[[Page 62174]]

Notification of an Applicant's Eligibility or Ineligibility, or 
Placement on a Waiting List, Section 247.15

    Currently, under Sec.  247.7(f), the State or local agency is 
required to notify an applicant in writing of a determination that the 
applicant is not eligible for CSFP benefits, and must document and 
maintain on file the reason that the applicant is not eligible. 
However, there is currently no requirement that the notification be 
made within a certain period of time, or that the applicant be notified 
of the reason for the denial of benefits. Currently, under Sec.  
247.7(b), the local agency is required to notify applicants of their 
placement on a waiting list, if no caseload slots are available, and 
provides a time limit of 20 days for this notification.
    We propose to require, in this proposed Sec.  247.15, that the 
local agency provide applicants with notification of their 
ineligibility or eligibility for CSFP, or their placement on a waiting 
list, within 10 days from the date of application. This is a reasonable 
period of time for a decision to be made on eligibility for food 
assistance, and to allow ineligible applicants to receive the 
information they need to seek other sources of assistance. We propose 
to retain the current requirement that notification of ineligibility be 
in writing, and include a statement of the individual's right to a fair 
hearing to appeal the decision. We propose to require that the written 
notification also include the reason that the applicant is ineligible. 
We propose to include the requirement to document and maintain on file 
the reasons for denying benefits to applicants under the proposed Sec.  
247.29, which addresses all reporting and recordkeeping requirements. 
We also propose to include in this section a requirement that the 
notification of approval of benefits be accompanied by information on 
the time, place and means of food distribution (e.g., once a month, 
every two months), and the length of the certification period. The 
requirement that this information be provided is currently under 
section 247.7(f).

Certification Period, Section 247.16

    Currently, under Sec.  247.7(g), the State agency must establish a 
certification period, which is the period of time participants may 
receive CSFP benefits before their eligibility must be reviewed. The 
certification period established by the State agency generally may not 
exceed six months in length, with the following exceptions:
    (1) Pregnant women must be certified for the duration of their 
pregnancy, and up to six weeks postpartum.
    (2) Elderly persons certified before September 17, 1986, are 
subject to the terms and conditions in place at the time of their 
original certification.
    (3) The certification period for other elderly persons may be 
extended for an additional six months without a review of eligibility 
criteria if the person's address and continued interest in program 
benefits are confirmed and if no women, infants, or children are 
waiting to be served.
    We propose to include certification period requirements under this 
proposed Sec.  247.16. In paragraph (a), we propose to include the 
length of the certification period for women, infants, and children 
without change. However, to reduce the burden on local agencies, we 
propose to allow State agencies to authorize local agencies to extend 
the certification period of elderly persons without a review of 
eligibility criteria for additional six-month periods (and not just for 
one six-month period), if, at each six-month interval, the conditions 
listed above are met. However, we propose to state explicitly that 
local agencies must have sufficient reason to believe that the elderly 
participant continues to meet the income eligibility standards (e.g., 
the elderly person has a fixed income). In conjunction with this 
proposed extension of the certification period for the elderly, we 
propose to remove the current provision that provides separate 
certification period criteria for elderly persons certified before 
September 17, 1986.
    In paragraph (b) of this proposed section, we propose to require 
that the certification period always extends to the final day of the 
month in which eligibility expires (e.g., the last day of the month in 
which a child reaches his or her sixth birthday). Under current 
regulations, the certification period may extend to this date. We 
believe that this certification period requirement should be uniform 
throughout the program.
    Currently, under Sec.  247.7(i), in the event that a CSFP or WIC 
participant moves to another area during the certification period, he 
or she may receive benefits under the local CSFP agency in the new area 
for the duration of the certification period. We propose to include 
this right of transfer of certification under paragraph (c) of this 
proposed section. We propose to add that, in the case of a WIC 
participant, the local agency must first determine that the participant 
is also eligible for CSFP, as eligibility requirements in both programs 
may not be the same. We also propose to remove the requirement that the 
State (or local) agency issue a verification of certification form to 
the participant to effect this transfer. We believe that, in most 
cases, such a form would be unnecessary, as the participant will have 
received notification of the certification period when eligibility was 
determined. Alternatively, the local agency in the participant's new 
area may simply make a telephone call to the other local agency to 
verify the certification period. We propose to state, however, that the 
local agency must provide verification of the certification period to 
the participant upon request.
    Under paragraph (d), we propose to include the current requirement 
that the local agency notify the participant at least 15 days before 
the expiration of the certification period that eligibility for the 
program is about to expire. Currently, this requirement is under Sec.  
247.7(f)(4).

Notification of Discontinuance, Section 247.17

    Currently, under Sec.  247.7(f)(3), the local agency must provide a 
participant who is found, during the certification period, to be no 
longer eligible for CSFP benefits with a notification of discontinuance 
at least 15 days prior to the effective date of termination from the 
program. The notification must include a reason for the participant's 
ineligibility, and a statement that the participant may appeal the 
discontinuance through the fair hearing process. We propose to include 
these notification requirements under this proposed Sec.  247.17, and 
to require also that the notification include the effective date of 
program termination.

Nutrition Education, Section 247.18

    Currently, under Sec.  247.8, two broad goals of nutrition 
education are included, and State and local agency responsibilities for 
providing nutrition education are described.
    The two broad goals address the relationship of proper nutrition to 
overall health, and achieving a positive change in food habits through 
use of CSFP foods. We propose to include nutrition education 
requirements in this proposed Sec.  247.18.
    In paragraph (a), we propose to outline the State agency's 
responsibilities in providing nutrition education. We propose to 
include here the current requirements that the State agency establish 
an overall nutrition education plan (which is part of the State Plan), 
and ensure that local agencies provide nutrition education in 
accordance with the plan. We also include the current requirement that 
the

[[Page 62175]]

State agency establish an evaluation procedure to ensure that the 
nutrition education provided is effective. The evaluation procedure 
must include participant input and must be directed by a nutritionist 
or other qualified professional. The evaluation may be performed by the 
State or local agency or, by another agency under agreement with the 
State or local agency.
    In paragraph (b), entitled What type of nutrition education must 
the local agency provide?, we propose to clarify nutrition education 
requirements by consolidating the two broad goals currently included in 
regulations and the current information that the local agency must 
provide. We propose to reword the informational requirements to put 
more emphasis on the relationship of the program to overall diet and 
good health. We also propose to include in this paragraph the current 
requirement that the local agency provide nutrition education that is 
easily understood, that is related to participants' nutritional needs 
and household situations, and that accounts for ethnic and cultural 
characteristics whenever possible. We propose that the local agency 
provide the participant with information on:
    (1) The nutritional value of the foods provided in the program, and 
their relationship to the overall dietary needs of the population 
groups served.
    (2) Nutritious ways to use the foods.
    (3) Special nutritional needs of participants and how these needs 
may be met.
    (4) For pregnant and postpartum women, the benefits of 
breastfeeding.
    (5) The importance of health care, and the role nutrition plays in 
maintaining good health.
    (6) The importance of the use of the foods by the participant to 
whom they are distributed, and not by another person.
    We propose to remove the current language that the local agency 
direct program funds to nutrition education for participants and 
program staff. Local agencies may choose to meet nutrition education 
requirements through use of other available resources, such as those 
provided by the Expanded Food, Nutrition and Education Program (EFNEP) 
or the Indian Health Service.
    Under paragraph (c), entitled To whom must local agencies provide 
nutrition education?, we propose to include the present requirement 
that local agencies make nutrition education available to all adult 
participants, and to parents or guardians of infants and child 
participants. We also propose to include the present encouragement to 
make nutrition education available to children, where appropriate.
    Under paragraph (d), entitled May CSFP foods be used in cooking 
demonstrations?, we include the current provision that the State or 
local agency, or an agency with which it has signed an agreement, may 
use CSFP foods in conducting cooking demonstrations as part of the 
nutrition education provided to program participants, but not for other 
purposes.

Dual Participation, Section 247.19

    Currently, under Sec.  247.7(j), State and local agencies are 
responsible for the detection and prevention of dual participation. 
Dual participation may entail simultaneous participation in WIC and 
CSFP, or simultaneous participation at more than one CSFP site. The 
State CSFP agency must agree on a plan with the State WIC agency to 
detect and prevent dual participation. The agreement must be in writing 
and must be included in the State Plan. To aid in preventing dual 
participation, the local agency must check the identification of each 
participant. We propose to include the requirements for the prevention 
and detection of dual participation without substantial change in 
paragraph (a) of this proposed Sec.  247.19.
    Currently, when a participant is determined to be committing dual 
participation, the participant must be terminated from one of the 
programs, and must be notified of termination from the other program, 
if, in accordance with Sec.  247.7(k), the local agency exercises the 
option to disqualify the participant. In paragraph (b) of this proposed 
section, we propose to include the actions that the local agency must 
take against an individual determined to be committing dual 
participation. We propose to clarify that the local agency may, in some 
instances, be required to disqualify a participant determined to be 
committing dual participation, in accordance with requirements relative 
to program violations in the proposed Sec.  247.20. We also propose to 
include that the local agency must initiate a claim against the 
participant to recover the value of benefits improperly received, in 
accordance with the proposed Sec.  247.30(c).

Program Violations, Section 247.20

    Currently, under Sec.  247.7(k), the State agency may disqualify 
applicants and participants from CSFP if the applicant, participant, 
parent, or caretaker is found to have fraudulently applied for, or 
obtained, program benefits. The State agency may establish a period of 
disqualification of up to 3 months. Fraud is defined in the current 
regulations as the commission of specific actions (which are listed) 
taken knowingly, willingly, and deceitfully. In this proposed Sec.  
247.20, we propose to list, in paragraph (a), actions which are subject 
to disqualification as program violations. Of the current list, we 
propose to remove the alteration of program documents to receive 
increased benefits or to transfer benefits; this action is included 
under intentionally making false or misleading statements, orally or in 
writing, which is retained from the current list. We propose to add as 
a program violation the physical abuse, or threat of physical abuse, of 
program staff. This problem has been related by some State and local 
agencies and has already been included as a program violation in 
regulations for the WIC Program. Other changes made to the current list 
are simply for the purpose of clarification.
    In paragraph (b), we propose to describe the disqualification 
penalties for committing program violations. We propose to allow the 
State agency to establish a disqualification period of up to one year, 
instead of up to three months. Additionally, we propose to require that 
the State agency require local agencies to disqualify participants from 
CSFP for a period of up to one year for program violations that involve 
fraud, unless the local agency determines that disqualification would 
result in a serious health risk. We also propose to require that State 
agencies require local agencies to permanently disqualify participants 
who commit three program violations that involve fraud. For purposes of 
this program, we propose to clarify that fraud includes the following 
actions:
    (1) Intentionally making false or misleading statements to obtain 
CSFP commodities.
    (2) Intentionally withholding information to obtain CSFP 
commodities.
    (3) Selling CSFP commodities, or exchanging them for non-food 
items.
    Individuals who commit dual participation may have committed a 
fraudulent act and be subject to the required disqualification. CSFP 
program operators, as well as those for the WIC Program, have expressed 
the need for stronger sanctions against persons committing dual 
participation and other program violations. Similar proposals regarding 
the strengthening of penalties for program violations were adopted by 
the WIC Program in a final rule published in the Federal Register at 65 
FR 83248 on December 29, 2000 (effective February 27, 2001). Thus, 
these proposals for CSFP would bring

[[Page 62176]]

the program into closer conformance with WIC in the important area of 
program integrity. They would also help to assure that CSFP benefits 
are available to those that really need the assistance.
    In paragraph (c), we propose to include the requirement that the 
State or local agency provide an individual with written notification 
of disqualification from CSFP at least 15 days before the effective 
date of the disqualification. The notification must include the 
effective date and period of disqualification, the reason for the 
disqualification, and must indicate that the individual may appeal the 
disqualification through the fair hearing process. This is in 
accordance with the right of the individual to a fair hearing to appeal 
other adverse actions, including denial or discontinuance of benefits.

Caseload Assignment, Section 247.21

    Currently, the processes of caseload assignment and allocation of 
administrative funds are described under Sec.  247.10. We propose to 
include caseload assignment in this proposed Sec.  247.21 and to 
describe the allocation of administrative funds in the proposed Sec.  
247.22. Currently, the order of caseload assignment is:
    (1) The three original elderly feeding projects.
    (2) Base caseload for each participating State agency, determined 
by participation in the previous year.
    (3) Expansion caseload requested by participating State agencies.
    (4) Caseload for States newly approved to participate in CSFP.
    We propose to remove the assignment of caseload to the three 
original elderly feeding projects as the first step in the process of 
assigning caseload to State agencies. The original intent of this 
provision, which was included in the interim rule published in the 
Federal Register at 51 FR 32895 on September 17, 1986, was to ensure 
adequate caseloads to accommodate the original elderly pilot projects. 
Since that time, assigned caseloads have increased dramatically, far 
beyond the amount necessary to ensure continued participation of the 
elderly pilot participants.
    We propose to change the terminology from ``expansion'' caseload to 
``additional'' caseload. The term additional caseload is more 
appropriate, since it represents the caseload assigned to currently 
participating States in addition to the base caseload. The term 
expansion implies that the State is planning to expand to new areas of 
the State. However, more often caseload is requested to allow service 
to additional participants at existing sites, or to return to the base 
caseload from the previous year.
    Under Sec.  247.10, State agencies are currently eligible to 
receive additional caseload if their monthly average participation 
during the preceding July through September or the prior fiscal year, 
or their participation during the month of September, equaled at least 
90 percent of their assigned caseload level for the preceding caseload 
cycle. In addition to using participation in the month of September to 
meet the 90 percent caseload utilization requirement for the purpose of 
obtaining additional caseload, the month of September is also included 
in the determination of base caseload. In some instances, State 
agencies that cannot sustain an average participation rate of 90 
percent over a prolonged period of time will significantly increase 
participation in the month of September in order to obtain additional 
caseload and administrative funds for the following caseload cycle.
    As discussed in detail below, the Farm Security and Rural 
Investment Act of 2002 (Pub. L. 107-171, 116 Stat. 134 (May 13, 2002)), 
requires that the Department provide State agencies with a grant per 
assigned caseload slot, adjusted annually to reflect inflation, to pay 
administrative costs. This change significantly increased the amount of 
funds available to support the program in 2003, and will continue to 
provide an enhanced, stable, and predictable administrative grant per 
assigned caseload slot. As a result, States are expected to more fully 
utilize assigned caseload. However, the establishment of an 
administrative grant per caseload slot also provides a greater 
incentive for States to request caseload in excess of what they can 
utilize. To ensure that additional caseload slots are allocated to 
States that are most likely to use them, we propose to implement more 
realistic, rigorous performance measures. The revised performance 
measures include (1) an increase in the caseload utilization 
requirement from 90 percent to 95 percent, and (2) the removal of 
participation during the month of September from the computation that 
determines base caseload and a State's eligibility for additional 
caseload.
    In developing these proposals, we analyzed the performance of State 
agencies over the last three fiscal years. Based on this analysis, and 
the availability of a specific enhanced level of administrative funds, 
it has been determined that State agencies can reasonably be expected 
to meet these more rigorous measures. While these measures may 
negatively impact a small number of States in any given year, they will 
have a positive impact on the program as whole by facilitating 
assignment of caseload slots to State agencies most likely to utilize 
them based on past performance. The allocation of caseload slots to 
such State agencies will ensure that the nutritional needs of low-
income women, infants, children, and elderly persons are more fully 
met. We are specifically requesting comments on the removal of the 
month of September.
    Currently, under Sec.  247.10, State agencies are assigned the 
lesser of an equal share of caseload available for expansion (up to 
each State's expansion request), or the amount that FNS determines 
State agencies need and can effectively manage. The criteria for making 
this determination are currently described in general terms under Sec.  
247.5(a), as ``demographic data'' and ``past performance of the State 
agency''. We propose to include, in this proposed section, the more 
specific factors that FNS considers in assigning additional caseload to 
State agencies. The specific factors proposed here are those that we 
have used over the last few years, and that were described in policy 
guidance provided to State agencies in April 1999. The factors, in 
descending order of importance, include:
    (1) Program participation of women, infants, and children, and the 
elderly in the State in the previous fiscal year.
    (2) The percentage of caseload utilized by the State in the 
previous caseload cycle.
    (3) Program participation trends in the State in previous fiscal 
years.
    (4) Other information provided by the State agency in support of 
the request.
    We propose to remove the current option to simply assign an equal 
amount of additional caseload to all States making requests. Since 
program needs and performances of States differ widely, it would not be 
a wise use of program resources to assign an equal amount of caseload 
to all.
    We also propose to include the specific factors that FNS considers 
in determining how much caseload to assign to States approved to begin 
participation in the program. The factors include:
    (1) Justification provided by the State agency which includes names 
and locations of local agencies, the areas within the State that will 
be served, the amount of caseload necessary to support service to these 
areas; and
    (2) The total amount of caseload for new States that program funds 
will support.

[[Page 62177]]

    We do not propose to change other important aspects of the caseload 
assignment process, including:
    (1) Base caseload may not exceed the total caseload assigned in the 
previous year.
    (2) Priority in assignment of additional caseload, or caseload for 
newly approved States, is given to requests to serve women, infants, 
and children over requests to serve the elderly.
    (3) Priority in assignment of caseload is given to currently 
participating States over requests from non-participating States.
    Under paragraph (b), we propose to respond to the question, When 
does FNS assign caseload to State agencies? We propose to revise the 
date by which FNS must assign caseload to December 31, or within 30 
days after enactment of appropriations legislation for the full fiscal 
year. Currently, FNS must assign caseload by December 1, or 30 days 
after enactment of appropriations legislation. However, because of late 
appropriations in several years, caseload has often been assigned later 
than December 1. Hence, this proposed change reflects what has come to 
be current practice. We are also proposing to change the caseload cycle 
to conform to the proposed change in the timing of caseload assignment, 
as described under the proposed section 247.1.
    Under paragraph (c), we propose to describe the means by which 
State agencies may request additional caseload for the next caseload 
cycle. As proposed under section 247.6(d), the State agency would be 
required to submit a request for additional caseload by November 5, as 
an amendment to the State Plan. The submission must also describe plans 
to serve women, infants, and children, and elderly, at new sites.

Allocation and Disbursement of Administrative Funds to State Agencies, 
Section 247.22

    Currently, the allocation and disbursement of administrative funds 
to State and local agencies are addressed under Sec. Sec.  247.9 and 
247.10. We propose to address FNS's allocation and disbursement of 
administrative funds to State agencies in this proposed Sec.  247.22, 
and to address the provision of funds by State agencies to local 
agencies in the proposed Sec.  247.23.
    In paragraph (a), we propose to include the current requirement 
that, in order to receive administrative funds, the State agency must 
have signed an agreement with FNS, in accordance with the proposed 
Sec.  247.4(a)(1), and must have an approved State Plan, in accordance 
with the proposed Sec.  247.6(a).
    The total amount of appropriated funds available each year for the 
administrative support of State and local agencies is established by 
law. In 1990, section 1771(d)(2) of Public Law 101-624 amended section 
5(a)(2) of Public Law 93-86 to increase the maximum level of 
administrative funding available for State and local agencies from 15 
percent of the program appropriation to 20 percent. Additionally, in 
1996, section 402(b)(3) of the Federal Agriculture Improvement and 
Reform Act of 1996, Public Law 104-127, amended section 5 of Public Law 
93-86 to mandate that the Department provide up to 20 percent of food 
funds carried over from the previous year for administrative support of 
State and local agencies.
    Section 4201(b) of the Farm Security and Rural Investment Act of 
2002 amended section 5 of Public Law 93-86 to mandate that the 
Department provide State agencies with a grant per assigned caseload 
slot, adjusted annually to reflect inflation, to pay administrative 
costs. It also deleted the limitation of total administrative funding 
for the program of 20 percent of the program appropriation and of food 
funds carried over from the previous year. Section 4201(b)(2) 
stipulates the per-caseload slot amounts State agencies are to receive 
in fiscal year 2003, and for subsequent fiscal years. For fiscal year 
2003, the grant per assigned caseload slot is $51.49, an amount equal 
to the per-caseload slot amount provided in fiscal year 2001 ($50.89), 
adjusted by the percentage change between: (1) The value of the State 
and local government price index, as published by the Bureau of 
Economic Analysis of the Department of Commerce, for the 12-month 
period ending June 30, 2001; and (2) the value of that index for the 
12-month period ending June 30, 2002. For subsequent fiscal years, the 
amount of the grant per assigned caseload slot is equal to the amount 
of the grant per assigned caseload slot for the preceding fiscal year, 
adjusted by the percentage change between: (1) The value of the State 
and local government price index, as published by the Bureau of 
Economic Analysis of the Department of Commerce, for the 12-month 
period ending June 30 of the second preceding fiscal year; and (2) the 
value of that index for the 12-month period ending June 30 of the 
preceding fiscal year. In paragraph (b) of this proposed section, we 
propose to include the current legislative mandates for allocating 
administrative funds to State agencies. Although the statutory changes 
described above are already in effect, we are amending the regulations 
at this time to incorporate these changes.
    We propose to remove current language under Sec.  247.10(b) that 
describes the formula once used for the separate allocation of 
administrative funds to support the distribution of surplus commodities 
provided to CSFP for distribution to households. This separate 
allocation of funds was eliminated by section 1771(d)(2) of Public Law 
101-624.
    In paragraph (c), we propose to include a description of the means 
by which State agencies access administrative funds. As currently 
described under Sec.  247.9(g), FNS provides funds to State agencies on 
a quarterly basis, through a Letter of Credit, unless other funding 
arrangements have been made with FNS. The State agency obtains the 
funds by electronically accessing its Letter of Credit account.

State Provision of Administrative Funds to Local Agencies, Section 
247.23

    Currently, section 247.10(b) addresses the amount of federal 
administrative funds that State agencies may retain to meet State-level 
costs each fiscal year, and the provision of the remaining funds to 
local agencies for their use in meeting program costs. The amount of 
funds that State agencies may retain is determined by a specific 
formula, and may not exceed $30,000. We propose to include these 
provisions substantially unchanged in paragraph (a) of this proposed 
Sec.  247.23. We do not propose to change the formula, or the maximum 
amount of funds that State agencies may retain.
    Under current regulations, the State agency may request approval 
from FNS to retain more than the maximum amount provided by the formula 
in any fiscal year. In paragraph (b), we propose to retain the State's 
option to request to retain more funds than allowed by formula. 
However, we propose to remove the limitation of this option to State 
agencies that provide warehouse services. Although food storage costs 
may make up a large part of a State agency's administrative costs, 
other administrative functions may also put a strain on State funds, 
and require the State agency to request to retain a larger share. As at 
present, however, State agencies must justify to FNS the need for the 
larger amount of funds, and must ensure that local agencies will not be 
unduly burdened by a reduction in their administrative funding.
    Currently, under Sec.  247.10(b)(6), the State agency must 
apportion funds among local agencies according to their

[[Page 62178]]

respective needs. We propose to include this provision in paragraph (c) 
of this proposed Sec.  247.23, and also to include the statement that 
the State agency must apportion funds in a manner that ensures that the 
funds will be used to achieve program objectives.

Recovery and Redistribution of Caseload and Administrative Funds, 
Section 247.24

    Currently, under Sec.  247.10(c), FNS may recover, and reassign, 
caseload slots that are not being utilized, and may recover, and 
reallocate, administrative funds that are not being utilized. In 
redistributing these resources, FNS must use the same procedures used 
in the initial assignment of the resources. We propose to include in 
Sec.  247.24 FNS's authority to recover and redistribute caseload and 
administrative funds. The redistribution of resources will be 
accomplished using the same procedures described in the proposed 
Sec. Sec.  247.21(a) and 247.22(b). FNS will reassign caseload using 
the most up-to-date data on participation and caseload utilization, as 
well as other information provided by State agencies. We propose to 
make clear that whether a State agency voluntary gives up caseload 
slots or FNS takes action to recover caseload slots, the State must use 
95 percent of its original caseload allocation to be eligible for 
expansion caseload.
    We are requesting that State and local agencies provide specific 
comments regarding procedures FNS should use in recovering caseload and 
administrative funds (e.g., is there a specific time during the 
caseload cycle that should be used to determine if there is a need to 
recover caseload and administrative funds?).
    The current limitation, found at Sec.  247.10(b)(4), which allows 
FNS to recover no more than 25 percent of a State agency's 
administrative funds allocation during any fiscal year is included in 
this proposed rule. However, we are considering increasing or 
eliminating the 25 percent limitation. Therefore, we are requesting 
specific comments regarding what, if any, limitation should be imposed, 
and the potential impact on program administration at the State and 
local level should the current limitation be increased or eliminated. 
We also propose to clarify that in instances in which the State agency 
requests that FNS recover any portion of its assigned caseload, no 
limitation, should one be retained, will apply.

Allowable Uses of Administrative Funds and Other Funds, Section 247.25

    Currently, under Sec.  247.11, State and local agencies may use 
administrative funds only for costs identified by Federal regulations 
or circulars as allowable, and determined by the State agency to be 
necessary to carry out the program. Some examples of allowable costs in 
CSFP are included, as well as a list of costs allowable only with prior 
approval of FNS. Current regulations describe unallowable costs as 
those costs ``not applicable to program objectives'' and include some 
examples.
    Currently, under Sec.  247.14, State and local agencies may use the 
procurement and property management requirements established by their 
State and local regulations in procuring equipment or services with 
program funds, and utilizing and disposing of the equipment, provided 
that they do not conflict with the requirements of applicable Federal 
regulations.
    Currently, Sec.  247.12 contains the requirements for the use of 
program income, which is income directly generated from program 
activities. Program income does not include income from the sale of 
property. The State agency is currently required to use program income 
to further program objectives.
    We propose to include regulatory guidance on allowable uses of 
administrative funds, program income, and funds recovered as a result 
of claims actions, in this proposed Sec.  247.25. In paragraph (a), we 
propose to state that administrative funds may be used for costs that 
are necessary to ensure the efficient and effective administration of 
the program, in accordance with 7 CFR part 3016 and 7 CFR part 3019. 7 
CFR part 3016 contains the rules for management of Federal grants to 
State, local, and Indian tribal governments, and incorporates the 
provisions of OMB Circular A-87 (Cost Principles for State and Local 
Governments) relating to allowable costs. 7 CFR part 3019 contains the 
grants management rules for nonprofit organizations and incorporates 
the provisions of OMB Circular A-122 relating to allowable costs. Since 
a discussion of the principles that determine whether specific costs 
are allowable is contained in the OMB circulars, we propose to include 
reference to the circulars as well as the Federal regulations. 
Reference to FMC 74-4 is removed, as this document has been superseded 
by the regulations and the OMB circulars. We also propose to include, 
in proposed Sec.  247.25(a), some examples of allowable costs, 
including: Storing, transporting, and distributing foods, eligibility 
determination, program outreach, nutrition education, audits and fair 
hearings, monitoring and review of program operations, and 
transportation of participants to and from the local agency, as 
necessary. This list is meant only to be representative of allowable 
costs in the program and is not meant to exclude other costs. If there 
is a question as to whether a particular cost is allowable, State and 
local agencies should refer to the above documents, or contact FNS.
    In paragraph (b), we propose to include the examples of unallowable 
costs currently included in the regulations and make clear that the 
applicable Federal regulations must be referenced to determine if other 
costs are allowable or not.
    Currently, under Sec.  247.11(c), specific costs that require FNS 
approval are listed. These include automatic data processing equipment 
and system purchases, capital expenditures over $2,500, rental or lease 
of facilities or equipment, and management studies performed by 
agencies or organizations other than the State or local agencies. 
However, the OMB Circulars referenced above, and parts 3016 and 3019 of 
this title, which incorporated their provisions, do not currently 
include rental or lease costs or management studies as costs requiring 
prior FNS approval. The regulations also currently define equipment as 
items with a cost of $5,000 or more per unit. Accordingly, we propose 
to amend 7 CFR part 247 to conform with these revisions.
    We propose to remove the current prior approval requirements for 
rental or lease costs and the cost of management studies. In paragraph 
(c) of this proposed Sec.  247.25, we propose to require prior approval 
for capital expenditures, but to clarify that capital expenditures 
include the acquisition of facilities or equipment, or enhancements to 
such capital assets, with a cost per unit of at least $5,000. We also 
propose to clarify that equipment includes automated information 
systems, automated data processing equipment, and other computer 
hardware and software, which are currently listed separately from 
capital expenditures. Equipment costs per unit under $5,000 are 
considered supplies, and not capital expenditures, and may be made 
without prior FNS approval.
    We propose to include the requirements for procuring property and 
services with program funds, and utilizing and disposing of property, 
in paragraph (d) of this proposed section, rather than in a separate 
section, as at

[[Page 62179]]

present. The use of administrative funds to procure property or 
services is an allowable cost (sometimes requiring FNS approval) and 
thus is appropriate to include in this section. We propose to include 
again the reference to 7 CFR parts 3016 and 3019, as these are the 
current Federal regulations that apply to procurement of property and 
services with program funds. As at present, State or local agencies may 
follow procurement procedures established by State or local regulations 
as long as these procedures do not conflict with Federal regulations. 
Also, as at present, Federal regulations do not relieve State or local 
agencies from responsibilities established in contracts relating to 
procurement of property, equipment, or services.
    In paragraph (e), we propose to include the current requirements 
for the use of program income, rather than in a separate section. As at 
present, State and local agencies must use program income--income 
directly generated from program activities--for allowable program 
costs, in accordance with 7 CFR part 3016. We propose to provide two 
examples of program income: The sale of packing containers or pallets, 
and the salvage of commodities. We also state, as in current 
regulations, that program income does not include interest earned from 
administrative funds.
    In paragraph (f), we propose to address the use of funds recovered 
as a result of claims against subdistributing and local agencies, and 
against participants. Currently, the State agency must use funds 
recovered through claims actions against subdistributing and local 
agencies in accordance with the provisions of 7 CFR 250.15 and FNS 
Instruction 410-1. We propose to incorporate this requirement in this 
paragraph for the sake of clarity. We also propose to require that the 
State agency use funds recovered as a result of claims against 
participants for allowable program costs. We propose to allow the State 
agency to authorize local agencies to utilize such funds for allowable 
program costs incurred at the local level, rather than returning them 
to the State. This authority is being proposed for State agencies 
since, in some instances, these funds can be used more efficiently and 
effectively at the local level.

Return of Administrative Funds, Section 247.26

    Section 247.18 of the current regulations addresses closeout 
procedures. Under current procedures, if a State agency does not use 
all of the funds allocated to it for the fiscal year, FNS recovers the 
unused funds at the end of the fiscal year. If, in the following fiscal 
year, OMB reapportions the recovered funds, FNS reallocates them to all 
State agencies. FNS reallocates to each State agency a share of the 
total reapportioned funds that is proportionate to its share of the 
total assigned caseload for the year in which the reallocation takes 
place.
    As discussed in detail above, the Farm Security and Rural 
Investment Act of 2002 requires that the Department provide State 
agencies with a grant per assigned caseload slot to pay administrative 
costs. The law limits the amount of administrative funds provided State 
agencies to the amount provided under the formula described in proposed 
Sec.  247.22. Therefore, administrative funds recovered at the end of 
the year and reapportioned by OMB will be used to support the program 
by generating caseload and the administrative funding that must 
accompany it. Such funds will not be reallocated to State agencies in 
the form of administrative funds in addition to the mandated grant per 
slot. We propose to include a description of this process in this 
proposed section 247.26.

Financial Management, Section 247.27

    Currently, under Sec.  247.9, State and local agencies must 
establish a financial management system that provides an accurate, 
current, and complete disclosure of the financial status of the 
program. Among the various aspects of the program's financial status, 
the State agency's system must include:
    (1) An accounting of all property and other assets procured with 
program funds.
    (2) An accounting of all program funds received and expended each 
fiscal year.
    (3) The accurate completion of required reports, and the 
maintenance of records identifying the source and use of administrative 
funds and program income (currently required under Sec.  247.12).
    (4) Prompt resolution of audits and claims.
    (5) Prompt disbursement of funds for program costs.
    (6) Assurance that local agencies will develop and implement a 
financial management system that allows them to meet Federal 
requirements.
    We propose to include financial management requirements for State 
and local agencies in this proposed Sec.  247.27. In paragraph (a), we 
propose to state that State and local public agencies must establish a 
financial management system in accordance with the provisions of 7 CFR 
part 3016, and that nonprofit organizations must follow financial 
management requirements contained under 7 CFR part 3019. We also 
propose to include the current statement that the State agency's 
financial management system must provide accurate, current, and 
complete disclosure of the financial status of the program, including 
an accounting of all program funds received and expended each fiscal 
year. We also propose to include the current requirement that the State 
agency must ensure that local agencies develop and implement a 
financial management system that allows them to meet Federal 
requirements.
    In paragraph (b), we propose to include some of the important 
components of the State agency's financial management system, which are 
treated in more detail in 7 CFR part 3016. These include:
    (1) Prompt and accurate payment of allowable costs.
    (2) Timely disbursement of funds to local agencies.
    (3) Timely and appropriate resolution of claims and audit findings.
    (4) Maintenance of records identifying the receipt and use of 
administrative funds, funds recovered as a result of claims actions, 
property and other assets procured with program funds, and the 
generation and use of program income (as defined under the proposed 
Sec.  247.25(e)).

Storage and Inventory of Commodities, Section 247.28

    Currently, under Sec.  247.4, the State agency is required to 
protect commodities from theft, spoilage, damage or destruction, or 
other loss. Other requirements relating to the storage of commodities 
are contained in 7 CFR 250.14, and pertain also to CSFP. Currently, 
under Sec.  247.13(c), a physical inventory of all foods at each 
storage and distribution site is required on an annual basis. We 
propose to include, in this proposed Sec.  247.28, the current 
requirements for storage and inventory of commodities, with only minor 
changes.
    Under paragraph (a), we propose to include the current requirement 
that State and local agencies must provide for storage of commodities 
to ensure their protection from theft, spoilage, damage or destruction, 
or other loss. We propose to state specifically that State and local 
agencies may contract with commercial facilities to store and 
distribute commodities, which is presently contained under Sec.  250.14 
of this chapter. We also propose to indicate that the required 
standards for warehousing and distribution systems,

[[Page 62180]]

and for contracts with storage facilities, are contained under Sec.  
250.14 of this chapter.
    Under paragraph (b) of this proposed section, we propose to include 
the current requirement that a physical inventory of all USDA 
commodities be conducted annually at each State and local agency 
storage and distribution site where these commodities are stored. We 
also propose to include the current requirement under 7 CFR 250.14 that 
results of the physical inventory be reconciled with inventory records 
and maintained on file by the State or local agency.

Reports and Recordkeeping, Section 247.29

    Currently, under Sec. Sec.  247.9 and 247.13, State and local 
agencies are required to maintain records to demonstrate that the 
receipt, disposal, and inventory of commodities, and the use of 
administrative funds, are in accordance with program regulations. 
Records must also indicate the results of any claims brought by the 
State agency. Also, under current Sec. Sec.  247.7 and 247.20, State 
and local agencies are required to maintain records relating to 
applicant eligibility and fair hearings. Additionally, under 7 CFR 
250.16(a)(5), State and local agencies must maintain records related to 
the determination of participant eligibility for receipt of foods.
    Currently, under Sec. Sec.  247.13 and 247.18, the State agency 
must report financial data on Form SF-269, on a quarterly basis, and 
must submit a closeout report, using this form, within 90 days of the 
end of the fiscal year. The State agency must submit data on the 
receipt, disposal, and inventory of commodities on a monthly basis, 
utilizing Form FNS-153, Monthly Report of the Commodity Supplemental 
Food Program. Each local agency must submit data on racial/ethnic 
participation on an annual basis, utilizing Form FNS-191, Racial/Ethnic 
Group Participation.
    We propose to include the reporting and recordkeeping requirements 
in this proposed Sec.  247.29. In paragraph (a), we propose to 
consolidate recordkeeping requirements from this part and from 7 CFR 
part 250 without substantial change. However, in the interest of 
clarity, we propose to be more specific in referring to some of the 
areas for which records must be maintained. We propose to require State 
and local agencies to maintain accurate and complete records relating 
to the receipt, disposal, and inventory of commodities, the receipt and 
disbursement of administrative funds and other funds, eligibility 
determinations, fair hearings, and other program activities. We propose 
to retain the present language that State and local agencies must also 
maintain records pertaining to liability for any improper distribution, 
use of, loss of, or damage to commodities, and the results obtained 
from the pursuit of claims arising in favor of the State or local 
agency. At present, all records must be retained for a period of three 
years from the end of the fiscal year to which they pertain, or, if 
they are related to unresolved claims actions, audits, or 
investigations, until those activities have been resolved. Also, all 
records must be available during normal business hours for use in 
management reviews, audits, or investigations, except medical case 
records of participants (unless they are the only source of 
certification data). We propose to remove current language under Sec.  
247.13 that all reports must be traceable to their source 
documentation. While it is true that the data in reports must coincide 
with source data, we do not believe that it is necessary to state this 
in the regulations. We also propose to remove the language indicating 
that FNS will use reports in evaluating the program performance of 
State and local agencies, which need not be stated in the regulations.
    In paragraph (b) of this proposed section, we propose to include 
the reporting requirements. Currently, under 7 CFR 250.17(a), the FNS-
153 is required to be submitted monthly, but FNS may require less 
frequent submission, or submission in another format, if this is 
determined to be sufficient to meet program needs. This allows FNS to 
reduce the reporting requirement in the future without regulatory 
action. For the sake of clarity, we propose to incorporate this 
language into this section. We also propose to include the major data 
elements that are reported on the FNS-153: The number of program 
participants in each population category; the distribution and receipt 
of commodities; beginning and ending inventories; and quarterly use of 
administrative funds. A number of years ago, a policy change moved the 
quarterly reporting of administrative funds use to the FNS-153 from the 
previous quarterly submission of the SF-269.
    Although the CSFP regulations currently reference the SF-269, 
Financial Status Report, that reference is imprecise because the 
underlying Departmental regulations at 7 CFR part 3016 recognize two 
variations of this form: The SF-269 (Long Form) and the SF-269A (Short 
Form). OMB Circular A-102 and 7 CFR part 3016 require Federal grant-
making agencies to require one or the other of these forms for use by 
their grantees in reporting the status of funds for non-construction 
programs. We have required the SF-269A for this purpose because this 
form is more appropriate for programs that do not have matching 
requirements or other complicating transactions. Therefore, we propose 
to clarify in this regulation the existing requirement for State 
agencies to use the SF-269A in reporting end-of-year financial data. 
Since use of administrative funds is reported quarterly on the FNS-153, 
we propose, in this new section, to formally require the SF-269A to be 
submitted only at the end of the fiscal year, as the closeout report. 
For the same reason, we propose to remove the current requirement, 
under Sec.  247.18(a), that the State agency submit a preliminary 
financial report within 30 days of the end of the fiscal year. We also 
propose to remove the current language that refers to submittal of Form 
FNS-155. This form, which also reports data on commodity inventories, 
is not required for CSFP, and was included in this part in error.
    Currently, under Sec.  247.23(b), FNS may require that State and 
local agencies provide data collected in the program to aid in the 
evaluation of the effect of program benefits on the low-income 
populations served. Such data requests must not include information on 
particular individuals. We propose to include this requirement, without 
change, in paragraph (c) of this proposed Sec.  247.29.

Claims, Section 247.30

    Currently, under Sec.  247.17, FNS must pursue a claim against the 
State agency if it determines that the State or local agency has 
misused program funds through negligence, fraud, theft, embezzlement, 
or other causes. The State agency must repay to FNS the full value of 
the misused funds. Currently, the requirements for pursuit of claims 
for the loss, or improper distribution, of commodities are contained 
under 7 CFR 250.15(c). FNS may initiate and pursue a claim against the 
State agency for commodities improperly distributed, or lost, stolen, 
spoiled or damaged as a result of improper care, storage, or handling. 
The State agency has the option of replacing the misused commodities 
with like foods. The State agency is responsible for initiating and 
pursuing claims against local agencies, subdistributing agencies, or 
other agencies or organizations for such losses.
    We propose to include the basic requirements for the initiation and 
pursuit of claims for the misuse of

[[Page 62181]]

program funds and commodities in this proposed Sec.  247.30, without 
substantial change from current requirements. We propose to address 
actions in response to misuse of funds in paragraph (a), and to address 
actions in response to the loss of commodities in paragraph (b). We 
propose to include in the regulations reference to 7 CFR 250.15(c) for 
procedural requirements relative to claims.
    Under 7 CFR 250.15, State agencies are required to pursue claims 
for improper distribution or loss of commodities. However, specific 
criteria relative to the establishment and pursuit of claims against 
CSFP participants are not currently addressed in 7 CFR parts 247 or 
250. We propose to establish such criteria in paragraph (c) of this 
proposed section. The WIC Program, under 7 CFR 246.23(c), requires that 
a State agency initiate a claim to recover the value of benefits 
improperly obtained or disposed of as the result of a participant 
violation. We propose to include a similar requirement, but to tie the 
initiation and pursuit of claims to those cases involving fraud, as 
defined in these regulations. As under the proposed Sec.  247.20, we 
propose to consider the selling of CSFP commodities, or their exchange 
for non-food items, as fraud, in addition to intentional false or 
misleading statements or the withholding of information by the 
participant, or the parent or caretaker. The State or local agency must 
also disqualify the participant from CSFP, unless the local agency 
determines that disqualification would result in a serious health risk, 
in accordance with the requirements of proposed Sec.  247.20(b). The 
State or local agency must advise the participant of the opportunity to 
appeal the claim through the fair hearing process, in accordance with 
proposed Sec.  247.33(a).
    In paragraph (d) of this proposed section, we propose to address 
the procedures that State and local agencies must follow in pursuing 
claims against participants. We propose to include the following 
requirements, which correspond to similar requirements in the WIC 
regulations:
    (1) The State agency must establish standards, based on a cost-
benefit review, for determining when the pursuit of a claim is cost-
effective, and must ensure that local agencies use these standards in 
determining if a claim is to be pursued.
    (2) The local agency must issue a letter demanding repayment for 
the value of the commodities improperly received or used.
    (3) If repayment is not made in a timely manner, the local agency 
must take additional collection actions that are cost-effective, in 
accordance with the standards established by the State agency.
    (4) The local agency must maintain all records regarding claims 
actions taken against participants, in accordance with proposed Sec.  
247.29.
    We believe that inclusion of these criteria would prove an 
effective deterrent, and would help to ensure that more program 
resources will be available to those who really need the assistance. 
These benefits would outweigh the small extra burden placed on State 
and local agencies in initiating and pursuing claims. State and local 
agencies would be able to exercise their judgment in determining if the 
actions necessary to recover the value of improperly obtained benefits 
are cost-effective, in accordance with the State-established standards.

Audits and Investigations, Section 247.31

    Currently, requirements for Federal and State-sponsored audits are 
contained under Sec.  247.15. Under Sec.  247.16, the Department is 
authorized to conduct investigations of any allegation that the State 
or local agency has not complied with Federal regulations. We propose 
to address audit requirements and the Department's authority to conduct 
investigations in this proposed Sec.  247.31. Legislation, and 
subsequent regulatory action by the Department, have modified 
requirements for State-sponsored audits somewhat, and this proposed 
section contains the amended requirements. All changes to current 
provisions described here merely reflect current audit requirements 
contained in 7 CFR part 3052, which contains the audit requirements for 
State and local governments and for nonprofit organizations.
    The Single Audit Act of 1984 (31 U.S.C. 7501 et seq.), and the 
Single Audit Act Amendments of 1996 (Pub. L. 104-156), amended Federal 
requirements for State-sponsored audits of agencies operating Federal 
programs. The OMB implemented the laws by publishing OMB Circular A-
133, on June 30, 1997, and the Department implemented the provisions of 
the law and circular by publishing regulations under 7 CFR part 3052 on 
August 29, 1997. OMB Circular A-128 was repealed, while OMB Circular A-
102 now addresses only Federal agency audits.
    The audit requirements were amended to increase the dollar 
threshold that determines when an audit is required from $25,000 to 
$300,000. Thus, Federal regulations do not require State and local 
governments or nonprofit organizations which expend less than $300,000 
in Federal awards in any fiscal year to have an audit for that year. 
This allows limited resources for audits to be used more efficiently. 
However, the new audit requirements require State and local agencies to 
have an audit conducted for each fiscal year in which they expend at 
least $300,000 in Federal awards, as detailed in 7 CFR part 3052. Thus, 
fewer agencies are now required to conduct audits; however, for those 
agencies that are required to conduct them, the requirement is now 
annual, instead of the two-year audit cycles previously required. As 
before, not all of the programs administered by an agency must be 
included in the audit, if the agency chooses to conduct a single, and 
not a program-specific, audit. The new audit requirements also modified 
the way in which auditors select which of the agency's programs are to 
be included in a single audit.
    In paragraph (a) of this proposed Sec.  247.31, we propose to 
describe the purpose of an audit, as currently described under Sec.  
247.15(d). In paragraph (b), we propose to clarify that the Department 
may conduct an audit of the program at the State or local agency level 
at its discretion, and may conduct an investigation of an allegation 
that the State or local agency has not complied with program 
requirements.
    In paragraph (c), we propose to include the following current 
responsibilities of the State agency in responding to a Departmental 
audit:
    (1) The State agency must provide access to records or documents 
compiled by State or local agencies or contractors.
    (2) The State agency must submit a corrective action plan, with 
time frames for implementation and completion of corrective actions, 
and must take additional actions, if determined necessary by the 
Department.
    In paragraph (d), we propose to include the current requirements 
under 7 CFR part 3052, as described above, that determine when a State 
and local agency audit is required. We propose to clarify that the 
value of CSFP commodities distributed by the agency or organization 
must be considered as part of the Federal award, in determining if an 
audit is required.
    In paragraph (e) of this proposed Sec.  247.31, we propose to note 
that State and local agency audits must be conducted in accordance with 
the requirements of 7 CFR part 3052. We also propose to include current 
requirements that State and local

[[Page 62182]]

agencies are responsible for follow-up and corrective actions in 
response to audit findings. Lastly, we propose to include that the 
State agency must ensure that local agencies meet audit requirements, 
and must ensure that all State or local agency audit reports are 
available for FNS review.

Termination of Agency Participation, Section 247.32

    Currently, under Sec.  247.18, FNS may terminate a State agency's 
participation in CSFP, in whole or in part, if the State agency does 
not comply with program requirements. The State agency must terminate a 
local agency's program, in whole or in part, if the State agency or FNS 
determines that the local agency has not complied with program 
requirements. Termination of a program must be effected by written 
notification, including the reasons and effective date. The State 
agency must provide the local agency with an opportunity to appeal the 
action. The State or local agency may also terminate its program, in 
whole or in part, by written notification to the administering agency 
(FNS or the State agency, as applicable), stating the reasons and 
effective date. Finally, program participation may also be terminated, 
in whole or in part, upon the agreement of both parties. The specific 
actions and procedures in program termination are more fully described 
in 7 CFR part 3016.
    In paragraph (a) of this proposed Sec.  247.32, we propose to 
describe when a State agency's program participation may be terminated, 
in whole or in part, without change to current requirements. However, 
for clarification, we propose to include the reference that 7 CFR part 
3016 contains the specific actions and procedures relative to program 
termination. We propose to remove the description of specific 
procedures relating to the return and recovery of funds currently 
included under Sec.  247.18, as these procedures are included in 7 CFR 
part 3016. We also propose to include a reference to the requirement, 
in the proposed Sec.  247.4(b), that either party to the program 
agreement provide 30 days' written notice of termination of the 
agreement.
    In paragraph (b), we propose to describe when a local agency's 
program participation may be terminated, in whole or in part. In 
accordance with the language contained in 7 CFR part 3016, we propose 
to state that the State agency may terminate a local agency's 
participation, or may be required to terminate the local agency's 
participation, in whole or in part, if the local agency does not comply 
with program requirements. This would allow the State agency to take 
less drastic actions than termination, whether complete or partial, in 
response to less serious violations. It also preserves the right of 
FNS, as the awarding agency, to require termination if the State agency 
does not take the action. We also propose to clarify in this paragraph 
that termination requires 30 days' written notification, in accordance 
with the agreements signed to operate the program.

Fair Hearing Procedures, Section 247.33

    Currently, under Sec.  247.20, the State agency must establish a 
fair hearing process to allow individuals to appeal the denial or 
discontinuance of CSFP benefits, or disqualification from CSFP. The 
specific procedures that the State agency is required to include in 
this process are also described in this section. We propose to include 
the fair hearing requirements in this proposed Sec.  247.33, with a 
clearer explanation of the nature and purpose of a fair hearing, and 
the procedures that State and local agencies must follow in providing 
individuals with an opportunity to request a hearing, and in conducting 
the hearing. Additionally, in paragraph (a) of this proposed section, 
we propose to include the appeal of a claim brought against a 
participant as one of the adverse actions for which a fair hearing may 
be requested.
    In paragraph (f) of this proposed section, we include the current 
provision that a participant who appeals the discontinuance of benefits 
within the 15-day advance notification period required under 
Sec. Sec. n 247.17 and 247.20 must be permitted to continue to receive 
benefits until a decision on the appeal is made (unless the 
certification period ends before the decision is made). However, we 
propose to include that, if the hearing decision finds that a 
participant received program benefits fraudulently, the local agency 
must include the value of benefits received for the period of time that 
the hearing was pending, as well as for any previous period, in its 
initiation and pursuit of a claim against the participant.

Management Reviews, Section 247.34

    Currently, under Sec.  247.21, FNS and the State agency must 
establish a management evaluation system to assess the accomplishment 
of program objectives and compliance with program regulations. Specific 
responsibilities of FNS and the State agency are outlined. Currently, 
as part of its management review, the State agency must conduct annual 
reviews of local agencies that include a review of all aspects of 
program administration. More frequent reviews may be conducted if the 
State agency determines that this is necessary. The evaluation must 
include on-site reviews, including reviews of storage facilities. The 
State agency must then identify problem areas and follow up to ensure 
that all problems are corrected.
    We propose to include the management review requirements for State 
agencies in this proposed Sec.  247.34, but to remove the FNS 
requirements. While FNS will continue its role in program oversight, 
these regulations should address only requirements for State and local 
agencies in monitoring the program. In paragraph (a), we propose to 
clarify that State agencies must establish a management review system 
to ensure that local agencies, subdistributing agencies, and other 
agencies conducting program activities meet program requirements and 
objectives. As part of the system, the State agency must perform on-
site reviews of local agencies that include an evaluation of all 
aspects of program administration, and must also review program 
reports, including financial and inventory reports, food orders, and 
audits, on an ongoing basis. As at present, on-site reviews must 
include a review of all storage facilities. However, to reduce the 
burden on State agencies in conducting reviews, we propose to require 
that the State agency perform on-site reviews of local agencies and 
storage facilities at least once every two years, instead of annually. 
We believe that, in most cases, effective communication and review of 
reports, in conjunction with the less frequent on-site reviews, will be 
sufficient to ensure the effective and efficient operation of the 
program at the local level.
    In paragraph (b), we propose to clearly state what the State agency 
must do if it finds that a local agency or subdistributing agency is 
deficient in any aspect of program administration. As at present, the 
State agency must record all deficiencies identified during the review, 
and ensure that the deficiencies are corrected within a reasonable 
period of time. Currently, the State agency must also require local 
agencies to establish review procedures for their programs irrespective 
of their program success or efficiency. We propose to state instead 
that, to ensure improved efficiency in program operations for the 
future, the State agency may require that local agencies adopt specific 
review procedures for their programs.

[[Page 62183]]

Local Agency Appeals of State Agency Actions, Section 247.35

    Currently, under Sec.  247.22, the State agency must establish a 
hearing procedure to allow local agencies to appeal any State agency 
decision that adversely affects a local agency's program participation. 
Such adverse action may include a denial or termination of 
participation, or a claim against the local agency. We propose to 
include this requirement in this proposed Sec.  247.35 without 
substantial change. As at present, the State agency must include 
specific procedures to allow the local agency to make an adequate 
presentation of its case at the hearing. The hearing decision must be 
made by an impartial person, and must be based solely on the evidence 
presented at the hearing and on program legislation and regulations. We 
propose only to revise the format to include three separate paragraphs 
in this new section, and to reduce the detail in current regulatory 
language to improve clarity.

Confidentiality of Applicants or Participants, Section 247.36

    Currently, under Sec.  247.23(c), State and local agencies must 
restrict the use or disclosure of information provided by program 
applicants or participants to only those persons directly connected 
with the administration or enforcement of the program. We propose to 
include the requirements for protection of confidentiality of program 
applicants or participants in this proposed Sec.  247.36. In paragraph 
(a), we propose to clarify that the disclosure of information to 
persons connected to the enforcement of the program includes those 
persons investigating or prosecuting program violations. This includes 
State or local agency WIC administrators investigating dual 
participation in CSFP and WIC. We also propose to allow the State or 
local agency to exchange information related to the determination of an 
individual's eligibility for other health or welfare programs, or for 
program outreach, with the participant's consent. Before doing this, 
however, the State agency must sign an agreement with the administering 
agencies for those programs to ensure that the information will be used 
only for the specified purposes, and that agencies receiving the 
information will not further share it. This exchange of information is 
currently allowed in the WIC program, and allows WIC agencies to 
provide information necessary for CSFP and other agencies to 
effectively outreach to, and enroll, eligible individuals. It is 
important that CSFP regulations also allow this sharing of information 
to ensure that CSFP agencies may similarly assist WIC agencies.
    Currently, under Sec.  247.16(b), the State agency must protect the 
confidentiality, and other rights in the program, of any person making 
allegations or complaints against any participant or program official, 
except as necessary to conduct an investigation, hearing, or judicial 
proceeding. We propose to include this requirement in paragraph (b) of 
this proposed section, as it relates to the protection of the 
confidentiality of program applicants or participants.

Civil Rights Requirements, Section 247.37

    Currently, under Sec.  247.19, the State agency must comply with 
the requirements of Title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d et seq.), FNS Civil Rights Instruction 113-2, and the 
Department's regulations (7 CFR Part 15) regarding nondiscrimination. 
We propose to include civil rights requirements under this proposed 
Sec.  247.37, and to add references to the more recent legislation 
relating to nondiscrimination, including Title IX of the Education 
Amendments of 1972 (20 U.S.C. 1681 et seq.), Section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 790 et seq.), the Age 
Discrimination Act of 1975 (42 U.S.C. 6101 et seq.), and Titles II and 
III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.). In accordance with the legislation, we also propose to amend the 
current regulatory language to state that no person shall, on the 
grounds of race, color, national origin, age, sex, or disability, be 
subjected to discrimination under the program. We also propose to 
include in this proposed section the current instructions under Sec.  
247.19 for the filing of a complaint of discrimination.
    We propose to delete the current Sec.  247.23(d), which indicates 
how interested persons may acquire program information and includes a 
list of the addresses of all FNS Regional Offices. We believe that 
program materials provided by State and local agencies and information 
on the FNS Web site at http://www.fns.usda.gov/fns are readily 
accessible sources of program contacts and information, and may also be 
more easily revised in the event any changes are made regarding this 
information.

List of Subjects in 7 CFR Part 247

    Agricultural commodities, Food assistance programs, Infants and 
children, Maternal and child health, Public assistance programs, 
nutrition, women, aged.
    Accordingly, 7 CFR part 247 is proposed to be revised to read as 
follows:

PART 247--COMMODITY SUPPLEMENTAL FOOD PROGRAM

Sec.
247.1 Definitions.
247.2 The purpose and scope of CSFP.
247.3 Administering agencies.
247.4 Agreements.
247.5 State and local agency responsibilities.
247.6 State Plan.
247.7 Selection of local agencies.
247.8 Individuals applying to participate in CSFP.
247.9 Eligibility requirements.
247.10 Distribution and use of CSFP commodities.
247.11 Applicants exceed caseload levels.
247.12 Rights and responsibilities.
247.13 Provisions for non-English or limited English speakers.
247.14 Other public assistance programs.
247.15 Notification of eligibility or ineligibility of applicant.
247.16 Certification period.
247.17 Notification of discontinuance of participant.
247.18 Nutrition education.
247.19 Dual participation.
247.20 Program violations.
247.21 Caseload assignment.
247.22 Allocation and disbursement of administrative funds to State 
agencies.
247.23 State provision of administrative funds to local agencies.
247.24 Recovery and redistribution of caseload and administrative 
funds.
247.25 Allowable uses of administrative funds and other funds.
247.26 Return of administrative funds.
247.27 Financial management.
247.28 Storage and inventory of commodities.
247.29 Reports and recordkeeping.
247.30 Claims.
247.31 Audits and investigations.
247.32 Termination of agency participation.
247.33 Fair hearings.
247.34 Management reviews.
247.35 Local agency appeals of State agency actions.
247.36 Confidentiality of applicants or participants.
247.37 Civil rights requirements.

    Authority: Sec. 5, Pub. L. 93-86, 87 Stat. 249, as added by Sec. 
1304(b)(2), Pub. L. 95-113, 91 Stat. 980 (7 U.S.C. 612c note); sec. 
1335, Pub. L. 97-98, 95 Stat. 1293 (7 U.S.C. 612c note); sec. 209, 
Pub. L. 98-8, 97 Stat. 35 (7 U.S.C. 612c note); sec. 2(8), Pub. L. 
98-92, 97 Stat. 611 (7 U.S.C. 612c note); sec. 1562, Pub. L. 99-198, 
99 Stat. 1590 (7 U.S.C. 612c note); sec. 101(k), Pub. L. 100-202; 
sec. 1771(a), Pub. L 101-624, 101 Stat. 3806 (7 U.S.C. 612c note); 
sec. 402(a), Pub. L. 104-127, 110 Stat. 1028 (7 U.S.C. 612c note).


Sec.  247.1  Definitions.

    Following is a list of definitions that apply to the Commodity 
Supplemental Food Program (CSFP).

[[Page 62184]]

    Breastfeeding women means women up to one year postpartum who are 
breastfeeding their infants.
    Caseload means the number of persons the State agency may serve on 
an average monthly basis over the course of the caseload cycle.
    Caseload cycle means the period from January 1 through the 
following December 31.
    Certification means the use of procedures to determine an 
applicant's eligibility for the program.
    Certification period means the period of time that a participant 
may continue to receive program benefits without a review of his or her 
eligibility.
    Children means persons who are at least one year of age but have 
not reached their sixth birthday.
    Commodities means nutritious foods purchased by USDA to supplement 
the diets of CSFP participants.
    CSFP means the Commodity Supplemental Food Program.
    Department means the U.S. Department of Agriculture.
    Dual participation means simultaneous participation by an 
individual in CSFP and the WIC Program, or in CSFP at more than one 
distribution site.
    Elderly persons means persons at least 60 years of age.
    Fiscal year means the period from October 1 through the following 
September 30.
    FNS means the Food and Nutrition Service.
    Infants means persons under one year of age.
    Local agency means a public or private nonprofit agency, including 
an Indian tribal organization, which enters into an agreement with the 
State agency to administer CSFP at the local level.
    Nonprofit agency means a private agency or organization with tax-
exempt status under the Internal Revenue Code, or that has applied for 
tax-exempt status with the Internal Revenue Service.
    Postpartum women means women up to one year after termination of 
pregnancy.
    7 CFR part 250 means the Department's regulations pertaining to the 
donation of foods for use in USDA food distribution programs.
    7 CFR part 3016 means the Department's regulations pertaining to 
administrative requirements for grants and cooperative agreements with 
State, local, and Indian tribal governments.
    7 CFR part 3019 means the Department's regulations pertaining to 
administrative requirements for grants and cooperative agreements with 
nonprofit organizations.
    7 CFR part 3052 means the Department's regulations pertaining to 
audits of States, local governments, and nonprofit organizations.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
the Trust Territory of the Pacific Islands, and the Northern Mariana 
Islands.
    State agency means the agency designated by the State to administer 
CSFP at the State level; an Indian tribe or tribal organization 
recognized by the Department of the Interior that administers the 
program for a specified tribe or tribes; or, the appropriate area 
office of the Indian Health Service of the Department of Health and 
Human Services.
    State Plan means the document that describes the manner in which 
the State agency intends to administer the program in the State.
    Subdistributing agency means an agency or organization that has 
entered into an agreement with the State agency to perform functions 
normally performed by the State, such as entering into agreements with 
eligible recipient agencies under which commodities are made available, 
ordering commodities and/or making arrangements for the storage and 
delivery of such commodities on behalf of eligible recipient agencies.
    WIC Program means the Special Supplemental Nutrition Program for 
Women, Infants, and Children.


Sec.  247.2  The purpose and scope of CSFP.

    (a) How does CSFP help participants? Through CSFP, the Department 
provides nutritious commodities to help State and local agencies meet 
the nutritional needs of low-income pregnant, postpartum, and 
breastfeeding women, infants, children ages 1 through 5, and elderly 
persons. Through local agencies, each participant receives a monthly 
package of commodities, based on food package guide rates developed by 
FNS, with input from State and local agencies. Food packages include 
such nutritious foods as infant formula and cereal, juices, canned 
fruits and vegetables, canned meat or poultry and other protein items, 
and grain products such as pasta, as well as other foods. Participants 
also receive nutrition education.
    (b) How many persons may be served in CSFP? State agencies may 
serve eligible persons up to the caseload limit assigned to them by 
FNS. Caseload is the number of persons that may be served on an average 
monthly basis over the course of the caseload cycle, which extends from 
January 1 through the following December 31.


Sec.  247.3  Administering agencies.

    (a) What agencies are responsible for administering CSFP? CSFP is 
administered at the Federal level by the Department's Food and 
Nutrition Service (FNS), which provides commodities, assigns caseload, 
and allocates administrative funds to State agencies. State agencies 
are responsible for administering the program at the State level. The 
State agency may select local agencies to administer the program in 
local areas of the State. The State agency must provide guidance to 
local agencies on all aspects of program operations. The State agency 
may also select subdistributing agencies (e.g., another State agency, a 
local governmental agency, or a nonprofit organization) to distribute 
or store commodities, or to perform other program functions on behalf 
of the State agency. Local or subdistributing agencies may also select 
other agencies to perform specific program functions (e.g., food 
distribution or storage), with the State agency's approval. Although 
the State agency may select other organizations to perform specific 
activities, the State agency is ultimately responsible for all aspects 
of program administration.
    (b) Are there specific functions that the State agency cannot 
delegate to another agency?
    Yes. The State agency may not delegate the performance of the 
following functions to another agency:
    (1) Establishing eligibility requirements, in accordance with the 
options provided to the State agency under Sec.  247.9.
    (2) Establishing a management review system and conducting reviews 
of local agencies, in accordance with Sec.  247.34.
    (c) What Federal requirements must State, subdistributing, and 
local agencies follow in administering CSFP? State, subdistributing, 
and local agencies must administer the program in accordance with the 
provisions of this part, and with the provisions contained in part 250 
of this chapter, unless they are inconsistent with the provisions of 
this part.


Sec.  247.4  Agreements.

    (a) What agreements are necessary for agencies to administer CSFP? 
The following agreements are necessary for agencies to administer CSFP:
    (1) Agreements between FNS and State agencies. Each State agency 
must enter into an agreement with FNS (Form FNS-74, the Federal-State 
Agreement) prior to receiving commodities or administrative funds.
    (2) Agreements between State agencies and local or subdistributing

[[Page 62185]]

agencies. The State agency must enter into written agreements with 
local or subdistributing agencies prior to making commodities or 
administrative funds available to them. The agreements must contain the 
information specified in paragraph (b) of this section. Agreements 
between State and local agencies must also contain the information 
specified in paragraph (c) of this section. Copies of all agreements 
must be kept on file by the parties to the agreements.
    (3) Agreements between local and subdistributing agencies and other 
agencies. The State agency must ensure that local and subdistributing 
agencies enter into written agreements with other agencies prior to 
making commodities or administrative funds available to these other 
agencies. The agreements must contain the information specified in 
paragraph (b) of this section. Copies of all agreements must be kept on 
file by the parties to the agreements.
    (b) What are the required contents of agreements? All agreements 
described under paragraphs (a)(2) and (a)(3) of this section must 
contain the following:
    (1) An assurance that each agency will administer the program in 
accordance with the provisions of this part and with the provisions of 
part 250 of this chapter, unless they are inconsistent with the 
provisions of this part.
    (2) An assurance that each agency will maintain accurate and 
complete records for a period of three years from the close of the 
fiscal year to which they pertain, or longer if the records are related 
to unresolved claims actions, audits, or investigations.
    (3) A statement that each agency receiving commodities for 
distribution is responsible for any loss resulting from improper 
distribution, or improper storage, care, or handling of commodities.
    (4) A statement that each agency receiving program funds is 
responsible for any misuse of program funds.
    (5) A description of the specific functions that the State, 
subdistributing, or local agency is delegating to another agency.
    (6) A statement that the agreement may be terminated by either 
party upon 30 days' written notice.
    (c) What other assurances or information must be included in 
agreements between State and local agencies? In addition to the 
requirements under paragraph (b) of this section, agreements between 
State and local agencies must contain the following:
    (1) An assurance that the local agency will provide, or cause to be 
provided, nutrition education to participants, as required in Sec.  
247.18.
    (2) An assurance that the local agency will provide information to 
participants on other health, nutrition, and public assistance 
programs, and make referrals as appropriate, as required in Sec.  
247.14.
    (3) An assurance that the local agency will distribute commodities 
in accordance with the approved food package guide rate.
    (4) An assurance that the local agency will take steps to prevent 
and detect dual participation, as required in Sec.  247.19.
    (5) The names and addresses of all certification, distribution, and 
storage sites under the jurisdiction of the local agency.
    (d) What is the duration of required agreements? All agreements 
between FNS and State agencies are considered permanent, but may be 
amended at the initiation of State agencies or at the request of FNS. 
All amendments must be approved by FNS. The State agency establishes 
the duration of agreements it signs with local agencies or 
subdistributing agencies. The State agency may establish, or permit the 
local or subdistributing agency to establish, the duration of 
agreements between local or subdistributing agencies and other 
agencies.


Sec.  247.5  State and local agency responsibilities.

    State and local agencies are responsible for administering the 
program in accordance with the provisions of this part, and with the 
provisions of part 250 of this chapter, as applicable. Although the 
State agency may delegate specific responsibilities to another agency, 
the State agency is ultimately responsible for all aspects of program 
administration. Following is an outline of the major responsibilities 
of State and local agencies; it is not intended to be all-inclusive.
    (a) What are the major responsibilities shared by State and local 
agencies? The major responsibilities shared by State and local agencies 
include:
    (1) Entering into required agreements.
    (2) Ordering commodities for distribution.
    (3) Storing and distributing commodities.
    (4) Establishing procedures for resolving complaints about 
commodities.
    (5) Complying with civil rights requirements.
    (6) Maintaining accurate and complete records.
    (7) Conducting program outreach.
    (b) What are the major State agency responsibilities? The major 
responsibilities of State agencies include:
    (1) Completing and submitting the State Plan.
    (2) Selecting local agencies to administer the program in local 
areas of the State.
    (3) Determining caseload needs, and submitting caseload requests to 
FNS.
    (4) Assigning caseload, and allocating administrative funds, to 
local agencies.
    (5) Establishing eligibility requirements, in accordance with the 
options provided to the State agency under Sec.  247.9. (This function 
may not be delegated to another agency.)
    (6) Establishing nutritional risk criteria and a residency 
requirement for participants, if such criteria are to be used.
    (7) Establishing a financial management system that effectively 
accounts for funds received for program administration.
    (8) Developing a plan for the detection and prevention of dual 
participation, in coordination with CSFP local agencies and with the 
State WIC agency.
    (9) Developing a plan for providing nutrition education to 
participants.
    (10) Establishing appeals and fair hearing procedures for local 
agencies and program participants.
    (11) Developing a management review system and conducting reviews 
of local agencies. (This function may not be delegated to another 
agency.)
    (12) Determining and pursuing claims, and establishing standards 
for pursuit of claims against participants.
    (13) Ensuring compliance with Federal audit requirements.
    (14) Providing guidance to local agencies, as needed.
    (c) What are the major local agency responsibilities? The major 
local agency responsibilities include:
    (1) Determining eligibility of applicants in accordance with 
eligibility criteria established by the State agency.
    (2) Complying with fiscal and operational requirements established 
by the State agency.
    (3) Ensuring that participation does not exceed the caseload 
assigned by the State agency.
    (4) Issuing foods to participants in accordance with the 
established food package guide rates.
    (5) Providing nutrition education and information on the 
availability of other nutrition and health assistance programs to 
participants.
    (6) Informing applicants of their rights and responsibilities in 
the program.
    (7) Meeting the special needs of the homebound elderly, to the 
extent possible.
    (8) Pursuing claims against participants.

[[Page 62186]]

Sec.  247.6  State Plan.

    (a) What is the State Plan? The State Plan is a document that 
describes how the State agency will operate CSFP and the caseload 
needed to serve eligible applicants. The State agency must submit the 
State Plan to FNS for approval. Once submitted and approved, the State 
Plan is considered permanent, with amendments submitted at the State 
agency's initiative, or at FNS request. All amendments are subject to 
FNS approval. The State Plan may be submitted in the format provided in 
FNS guidance, in an alternate format, or in combination with other 
documents required by Federal regulations. The State agency is 
encouraged to collaborate with the State WIC agency in developing the 
State Plan, for example, in developing plans for serving women, 
infants, and children, program outreach, and nutrition education. 
(Collaboration with the State WIC agency is required in preventing and 
detecting dual participation.) The State Plan must be signed by the 
State agency official responsible for program administration. A copy of 
the State Plan must be kept on file at the State agency for public 
inspection.
    (b) When must the State Plan be submitted? The State Plan must be 
submitted by August 15 to take effect for the fiscal year beginning in 
the following October. FNS will provide notification of the approval or 
disapproval of the State Plan within 30 days of receipt, and will 
notify the State agency within 15 days of receipt if additional 
information is needed. Disapproval of the Plan will include a reason 
for the disapproval. Approval of the Plan is a prerequisite to the 
assignment of caseload and allocation of administrative funds, but does 
not ensure that caseload and funds will be provided.
    (c) What must be included in the State Plan? The State Plan must 
include:
    (1) The names and addresses of all local agencies and 
subdistributing agencies with which the State agency has entered into 
agreement.
    (2) The income eligibility standards to be used for women, infants, 
and children, and the options to be used relating to income or other 
eligibility requirements, as provided under Sec.  247.9.
    (3) The nutritional risk criteria to be used, if the State chooses 
to establish such criteria.
    (4) A description of plans for serving women, infants, children, 
and elderly participants and the caseload needed to serve them.
    (5) A description of plans for conducting outreach to women, 
infants, children, and the elderly.
    (6) A description of the system for storing and distributing 
commodities.
    (7) A description of plans for providing nutrition education to 
participants.
    (8) A description of the means by which the State agency will 
detect and prevent dual participation, including collaboration with the 
State WIC agency, and a copy of the agreement signed with the State WIC 
agency to accomplish this.
    (9) A description of the standards the State agency will use in 
determining if the pursuit of a claim against a participant is cost-
effective.
    (10) A description of the means by which the State will meet the 
needs of the homebound elderly.
    (11) Copies of all agreements entered into by the State agency.
    (d) When must the State agency submit amendments to the State Plan? 
The State agency must submit amendments to FNS to reflect any changes 
in program operations or administration described in the State Plan, 
and to request additional caseload for the following caseload cycle. 
FNS may also require that the State Plan be amended to reflect changes 
in Federal law or policy. The State agency may submit amendments to the 
State Plan at any time during the fiscal year, for FNS approval. The 
amendments will take effect immediately upon approval, unless otherwise 
specified by FNS. If a State agency would like to receive additional 
caseload for the caseload cycle beginning the following January 1, it 
must submit an amendment to the Plan which conveys the request for 
additional caseload by November 5. The State agency must also describe 
in this submission any plans for serving women, infants, children, and 
the elderly at new sites. FNS action on the State agency's request for 
additional caseload is part of the caseload assignment process, as 
described under Sec.  247.21.


Sec.  247.7  Selection of local agencies.

    (a) How does a local agency apply to participate in CSFP? Local 
agencies wishing to participate in CSFP must submit a written 
application to the State agency. The application must describe how the 
local agency will operate the program and, for nonprofit agencies, must 
include the agency's tax-exempt status. To be eligible to participate 
in CSFP, a nonprofit agency must have tax-exempt status under the 
Internal Revenue Code (IRC), or have applied for tax-exempt status with 
the Internal Revenue Service (IRS), and be moving towards such status. 
Nonprofit agencies organized or operated exclusively for religious 
purposes are automatically tax-exempt under the IRC. Nonprofit agencies 
required to obtain tax-exempt status must provide documentation from 
the IRS that they have obtained such status, or have applied for it.
    (b) On what basis does the State agency make a decision on the 
local agency's application? The State agency must approve or disapprove 
the local agency's application based on the following criteria:
    (1) The ability of the local agency to operate the program in 
accordance with Federal and State requirements.
    (2) The need for the program in the projected service area of the 
local agency.
    (3) The resources available (caseload and funds) for initiating a 
program in the local area.
    (4) For nonprofit agencies, the tax-exempt status, with appropriate 
documentation.
    (c) What must the State agency do if a nonprofit agency approved 
for CSFP is subsequently denied tax-exempt status by the IRS, or does 
not obtain this status within a certain period of time? In accordance 
with paragraph (a) of this section, the State agency may approve a 
nonprofit agency that has applied to the IRS for tax-exempt status, and 
is moving toward compliance with the requirements for recognition of 
tax-exempt status. However, if the IRS subsequently denies a 
participating agency's application for recognition of tax-exempt 
status, the agency must immediately notify the State agency of the 
denial. The State agency must terminate the agency's agreement and 
participation immediately upon notification. If documentation of 
recognition of tax-exempt status is not received within 180 days of the 
effective date of the agency's approval to participate in CSFP, the 
State agency must terminate the agency's participation until such time 
as recognition of tax-exempt status is obtained. However, the State 
agency may grant an extension of 90 days if the agency demonstrates 
that its inability to obtain tax-exempt status in the 180-day period is 
due to circumstances beyond its control.
    (d) How much time does the State agency have to make a decision on 
the local agency's application? The State agency must inform the local 
agency of approval or denial of the application within 60 days of its 
receipt. If the application is denied, the State agency must provide a 
written explanation for the denial, along with notification of the

[[Page 62187]]

local agency's right to appeal the decision, in accordance with Sec.  
247.35. If the application is approved, the State and local agency must 
enter into an agreement in accordance with the requirements of Sec.  
247.4.


Sec.  247.8  Individuals applying to participate in CSFP.

    (a) What information must individuals applying to participate in 
CSFP provide? To apply for CSFP benefits, the applicant, or the adult 
parent or guardian of the applicant, must provide the following 
information on the application:
    (1) Name and address, including some form of identification for 
each applicant.
    (2) Household income.
    (3) Other information related to eligibility, such as age or 
pregnancy, as applicable.
    (b) What else is required on the application form? After informing 
the applicant (or adult parent or guardian) of his or her rights and 
responsibilities, in accordance with Sec.  247.12, the local agency 
must ensure that the applicant, or the adult parent or guardian of the 
applicant, signs the application form beneath the following pre-printed 
statement. The statement must be read by, or to, the applicant (or 
adult parent or guardian) before signing.

    This application is being completed in connection with the 
receipt of Federal assistance. Program officials may verify 
information on this form. I am aware that deliberate 
misrepresentation may subject me to prosecution under applicable 
State and Federal statutes. I am also aware that the information 
provided may be shared with other organizations to detect and 
prevent dual participation. I have been advised of my rights and 
obligations under the program. I certify that the information I have 
provided for my eligibility determination is correct to the best of 
my knowledge.
    I authorize the release of information provided on this 
application form to other organizations administering assistance 
programs for use in determining my eligibility for participation in 
other public assistance programs and for program outreach purposes. 
(Please indicate decision by placing a checkmark in the appropriate 
box.)

YES [ballot]
NO [ballot]


Sec.  247.9  Eligibility requirements.

    (a) Who is eligible for CSFP? To be eligible for CSFP, individuals 
must fall into one of the following population groups:
    (1) Infants, i.e., persons under one year of age.
    (2) Children, i.e., persons who are at least one year of age but 
have not reached their sixth birthday.
    (3) Pregnant women.
    (4) Breastfeeding women, up to one year after giving birth (post-
partum).
    (5) Post-partum women, up to one year after termination of 
pregnancy.
    (6) Elderly persons, i.e., persons at least 60 years of age.
    (b) What are the income eligibility requirements for women, 
infants, and children? (1) The State agency must establish household 
income limits that are at or below 185 percent of the Federal Poverty 
Income Guidelines published annually by the Department of Health and 
Human Services, but not below 100 percent of these guidelines. However, 
the State agency must accept as income-eligible, regardless of actual 
income, any applicant who is:
    (i) Certified as eligible to receive food stamps under the Food 
Stamp Act of 1977 (7 U.S.C. 2011 et seq.), Temporary Assistance for 
Needy Families (TANF) under Part A of Title IV of the Social Security 
Act (42 U.S.C. 601 et seq.), or Medical Assistance (i.e., Medicaid) 
under Title XIX of the Social Security Act (42 U.S.C. 1396 et seq.).
    (ii) A member of a family that is certified eligible to receive 
assistance under TANF, or a member of a family in which a pregnant 
woman or an infant is certified eligible to receive assistance under 
Medicaid.
    (2) The State agency may consider women, infants, and children 
participating in another Federal, State, or local food, health, or 
welfare program as automatically eligible for CSFP if the income 
eligibility limits for the program are equal to or lower than the 
established CSFP limits.
    (3) For a pregnant woman, the State agency must count each embryo 
or fetus in utero as a household member in determining if the household 
meets the income eligibility standards.
    (c) What are the income eligibility requirements for elderly 
persons? The State agency must use a household income limit at or below 
130 percent of the Federal Poverty Income Guidelines. Elderly persons 
in households with income at or below this level must be considered 
eligible for CSFP benefits (assuming they meet other requirements). 
However, elderly persons certified before September 17, 1986 (i.e., 
under the three elderly pilot projects) must remain subject to the 
eligibility criteria in effect at the time of their certification.
    (d) When must the State agency revise the CSFP income guidelines to 
reflect the annual adjustments of the Federal Poverty Income 
Guidelines? Each year, FNS will notify State agencies, by memorandum, 
of adjusted income guidelines by household size at 185 percent, 130 
percent, and 100 percent of the Federal Poverty Income Guidelines. The 
memorandum will reflect the annual adjustments to the Federal Poverty 
Income Guidelines issued by the Department of Health and Human 
Services. The State agency must implement the adjusted guidelines for 
elderly applicants immediately upon receipt of the memorandum. However, 
for women, infants, and children applicants, the State agency must 
implement the adjusted guidelines at the same time that the State WIC 
agency implements the adjusted guidelines in WIC.
    (e) How is income defined and considered as it relates to CSFP 
eligibility? (1) Income means gross income before deductions for such 
items as income taxes, employees' social security taxes, insurance 
premiums, and bonds.
    (2) The State agency may exclude from consideration the following 
sources of income listed under the WIC regulations at Sec.  
246.7(d)(2)(iv) of this chapter:
    (i) Any basic allowance for housing received by military services 
personnel residing off military installations.
    (ii) The value of inkind housing and other inkind benefits.
    (3) The State agency must exclude from consideration all income 
sources excluded by legislation, which are listed in Sec.  
246.7(d)(2)(iv)(C) of this chapter. FNS will notify State agencies of 
any new forms of income excluded by statute through program policy 
memoranda.
    (4) The State agency may authorize local agencies to consider the 
household's average income during the previous 12 months and current 
household income to determine which more accurately reflects the 
household's status. In instances in which the State makes the decision 
to authorize local agencies to determine a household's income in this 
manner, all local agencies must comply with the State's decision and 
apply this method of income determination in situations in which it is 
warranted.
    (f) What other options does the State agency have in establishing 
eligibility requirements for CSFP? (1) The State agency may require 
that an individual be at nutritional risk, as determined by a physician 
or by local agency staff.
    (2) The State agency may require that an individual reside within 
the service area of the local agency at the time of application for 
CSFP benefits. However, the State agency may not require that an 
individual reside within the area for any fixed period of time.

[[Page 62188]]

Sec.  247.10  Distribution and use of CSFP commodities.

    (a) What are the requirements for distributing CSFP commodities to 
participants? The local agency must distribute a package of commodities 
to participants each month, or a two-month supply of commodities to 
participants every other month, in accordance with the food package 
guide rates established by FNS.
    (b) What must the local agency do to ensure that commodities are 
distributed only to CSFP participants? The local agency must require 
each participant, or participant's proxy, to present some form of 
identification before distributing commodities to that person.
    (c) What restrictions apply to State and local agencies in the 
distribution of CSFP commodities? State and local agencies must not 
require, or request, that participants make any payments, or provide 
any materials or services, in connection with the receipt of CSFP 
commodities. State and local agencies must not use the distribution of 
CSFP commodities as a means of furthering the political interests of 
any person or party.
    (d) What are the restrictions for the use of CSFP commodities? CSFP 
commodities may not be used for outreach, refreshments, or for any 
purposes other than distribution to, and nutrition education for, CSFP 
participants.


Sec.  247.11  Applicants exceed caseload levels.

    (a) What must the local agency do if the number of applicants 
exceeds the local agency's caseload level? If all caseload has been 
filled, the local agency must maintain a waiting list of individuals 
who apply for the program. In establishing the waiting list, the local 
agency must include the date of application, the population group of 
the applicant, and information necessary to allow the local agency to 
contact the applicant when caseload space becomes available. Unless 
they have been determined ineligible, applicants must be notified of 
their placement on a waiting list within 10 days of their request for 
benefits.
    (b) What are the requirements for serving individuals on the 
waiting list once caseload slots become available? When caseload slots 
open up, the local agency must provide benefits to eligible individuals 
on the waiting list in the following order of priority:
    (1) Pregnant women, breastfeeding women, and infants.
    (2) Children ages 1 through 3.
    (3) Children ages 4 and 5.
    (4) Postpartum women.
    (5) Elderly persons.


Sec.  247.12  Rights and responsibilities.

    (a) What information regarding an individual's rights in CSFP must 
the local agency provide to the applicant? The local agency is 
responsible for informing the applicant, orally or in writing, of the 
following:
    (1) Program standards are applied without discrimination by race, 
color, national origin, age, disability, or sex.
    (2) The local agency will provide notification of a decision to 
deny or terminate CSFP benefits, and of an individual's right to appeal 
this decision by requesting a fair hearing, in accordance with Sec.  
247.33(a).
    (3) The local agency will make nutrition education available to all 
adult participants, and to parents or guardians of infant and child 
participants, and will encourage them to participate.
    (4) The local agency will provide information on other nutrition, 
health, or assistance programs, and make referrals as appropriate.
    (b) What information regarding an individual's responsibilities in 
CSFP must the local agency provide to the applicant? In addition to the 
written statement required by Sec.  247.8(b), the local agency is 
responsible for informing the applicant, orally or in writing, of the 
following:
    (1) Individuals may not receive both CSFP and WIC benefits 
simultaneously, and may not receive CSFP benefits at more than one CSFP 
site simultaneously.
    (2) Improper receipt of CSFP benefits as a result of dual 
participation or other program violations may lead to a claim against 
the individual to recover the value of the benefits, and may lead to 
disqualification from CSFP.
    (3) Participants must report changes in household income or 
composition within 10 days after the change becomes known to the 
household.


Sec.  247.13  Provisions for non-English or limited English speakers.

    (a) What must State and local agencies do to ensure that non-
English or limited English speaking persons are aware of their rights 
and responsibilities in the program? If a significant proportion of the 
population in an area is comprised of non-English or limited English 
speaking persons with a common language, the State agency must ensure 
that local agencies inform such persons of their rights and 
responsibilities in the program, as listed under Sec.  247.12, in an 
appropriate language. State and local agencies must ensure that 
bilingual staff members or interpreters are available to serve these 
persons.
    (b) What must State and local agencies do to ensure that non-
English or limited English speaking persons are aware of other program 
information? If a significant proportion of the population in an area 
is comprised of non-English or limited English speaking persons with a 
common language, the State agency must ensure that local agencies 
provide other program information, except application forms, to such 
persons in an appropriate language.


Sec.  247.14  Other public assistance programs.

    (a) What information on other public assistance programs must the 
local agency provide to women, infants, and children applicants? The 
local agency must provide CSFP applicants eligible for both CSFP and 
WIC with written information on the WIC Program, to assist them in 
choosing the program in which they wish to participate. Additionally, 
the local agency must provide women, infants, and children applicants 
with written information on the following nutrition, health, or public 
assistance programs, and make referrals to these programs as 
appropriate:
    (1) The Medicaid Program, which is the medical assistance program 
established under Title XIX of the Social Security Act (42 U.S.C. 1396 
et seq.), and other health insurance programs for low-income households 
in the State. The State agency must provide local agencies with 
materials showing the income standards utilized in the Medicaid 
Program.
    (2) The Temporary Assistance for Needy Families (TANF) program 
under part A of Title IV of the Social Security Act (42 U.S.C. 601 et 
seq.).
    (3) The Child Support Enforcement Program under part D of Title IV 
of the Social Security Act (42 U.S.C. 651 et seq.).
    (4) The Food Stamp Program (7 U.S.C. 2011 et seq.).
    (b) What information on other public assistance programs must the 
local agency provide to elderly applicants? The local agency must 
provide elderly applicants with written information on the following 
programs, and make referrals, as appropriate:
    (1) Supplemental security income benefits provided under title XVI 
of the Social Security Act (42 U.S.C. 1381 et seq.).
    (2) Medical assistance provided under title XIX of the Social 
Security Act (42 U.S.C. 1396 et seq.), including medical assistance 
provided to a qualified Medicare beneficiary (42 U.S.C. 1395(p) and 
1396d(5)).

[[Page 62189]]

    (3) The Food Stamp Program (7 U.S.C. 2011 et seq.).
    (c) Is the value of CSFP benefits counted as income or resources 
for any other public assistance programs? No. The value of benefits 
received in CSFP may not be considered as income or resources of 
participants or their families for any purpose under Federal, State, or 
local laws, including laws relating to taxation and public assistance 
programs.


Sec.  247.15  Notification of eligibility or ineligibility of 
applicant.

    (a) What is the timeframe for notifying an applicant of eligibility 
or ineligibility for CSFP benefits? Local agencies must notify 
applicants of their eligibility or ineligibility for CSFP benefits, or 
their placement on a waiting list, within 10 days from the date of 
application.
    (b) What must be included in the notification of eligibility or 
ineligibility? The notification of eligibility must include information 
on the time, location, and means of food distribution, and the length 
of the certification period. Notification of ineligibility must be in 
writing, and must include the reason the applicant is not eligible, and 
a statement of the individual's right to a fair hearing to appeal the 
decision.


Sec.  247.16  Certification period.

    (a) How long is the certification period? (1) Women, infants, and 
children. For women, infants, and children, the State agency must 
establish certification periods that may not exceed 6 months in length. 
However, pregnant women must be certified to participate for the 
duration of their pregnancy and for up to six weeks post-partum.
    (2) Elderly persons. For elderly persons, the State agency must 
establish certification periods that may not exceed 6 months in length. 
However, the State agency may authorize local agencies to extend the 
certification period without a formal review of eligibility for 
additional 6-month periods, as long as the following conditions are 
met:
    (i) The person's address and continued interest in receiving 
program benefits are verified.
    (ii) The local agency has sufficient reason to believe that the 
person still meets the income eligibility standards (e.g., the elderly 
person has a fixed income).
    (iii) No eligible women, infants, or children are waiting to be 
served.
    (b) On what day of the final month does the certification period 
end? The certification period extends to the final day of the month in 
which eligibility expires (e.g., the last day of the month in which a 
child reaches his or her sixth birthday).
    (c) Does the certification period end when a participant moves from 
the local area in which he or she was receiving benefits? No. The State 
agency must ensure that local agencies serve a CSFP participant, or WIC 
participant (if also eligible for CSFP), who moves from another area to 
an area served by CSFP, and whose certification period has not expired. 
The participant must be given the opportunity to continue to receive 
CSFP benefits for the duration of the certification period. If the 
local agency has a waiting list, the participant must be placed on its 
waiting list ahead of all other waiting applicants. The local agency 
that determined the participant's eligibility must provide verification 
of the extent of the certification period to the participant upon 
request.
    (d) What must the local agency do to ensure that participants are 
aware of the expiration of the certification period? The local agency 
must notify program participants in writing at least 15 days before the 
expiration date that eligibility for the program is about to expire.


Sec.  247.17  Notification of discontinuance of participant.

    (a) What must a local agency do if it has evidence that a 
participant is no longer eligible for CSFP benefits during the 
certification period? If a local agency has evidence that a participant 
is no longer eligible for CSFP benefits during the certification 
period, it must provide the participant with a written notification of 
discontinuance at least 15 days before the effective date of 
discontinuance.
    (b) What must be included in the notification of discontinuance? 
The notification of discontinuance must include the effective date of 
discontinuance, the reason for the participant's ineligibility, and a 
statement of the individual's right to appeal the discontinuance 
through the fair hearing process, in accordance with Sec.  247.33(a).


Sec.  247.18  Nutrition education.

    (a) What are the State agency's responsibilities in ensuring that 
nutrition education is provided? The State agency must establish an 
overall nutrition education plan and must ensure that local agencies 
provide nutrition education to participants in accordance with the 
plan. The State agency must also establish an evaluation procedure to 
ensure that the nutrition education provided is effective. The 
evaluation procedure must include participant input and must be 
directed by a nutritionist or other qualified professional. The 
evaluation may be conducted by the State or local agency, or by another 
agency under agreement with the State or local agency.
    (b) What type of nutrition education must the local agency provide? 
The local agency must provide nutrition education that can be easily 
understood by participants and is related to their nutritional needs 
and household situations. The local agency must provide nutrition 
education that includes the following information, which should account 
for specific ethnic and cultural characteristics whenever possible:
    (1) The nutritional value of CSFP foods, and their relationship to 
the overall dietary needs of the population groups served.
    (2) Nutritious ways to use CSFP foods.
    (3) Special nutritional needs of participants and how these needs 
may be met.
    (4) For pregnant and postpartum women, the benefits of 
breastfeeding.
    (5) The importance of health care, and the role nutrition plays in 
maintaining good health.
    (6) The importance of the use of the foods by the participant to 
whom they are distributed, and not by another person.
    (c) To whom must local agencies provide nutrition education? The 
local agency must make nutrition education available to all adult 
participants and to parents or guardians of infants and child 
participants. Local agencies are encouraged to make nutrition education 
available to children, where appropriate.
    (d) May CSFP foods be used in cooking demonstrations? Yes. The 
State or local agency, or another agency with which it has signed an 
agreement, may use CSFP foods to conduct cooking demonstrations as part 
of the nutrition education provided to program participants, but not 
for other purposes.


Sec.  247.19  Dual participation.

    (a) What must State and local agencies do to prevent and detect 
dual participation? The State agency must work with the State WIC 
agency to develop a plan to prevent and detect dual participation, in 
accordance with an agreement signed by both agencies. The State agency 
must also work with local agencies to prevent and detect dual 
participation. In accordance with Sec.  247.12(b)(1), the local agency 
must inform applicants that dual participation is not allowed and must 
check the identification of all

[[Page 62190]]

participants when they are certified or recertified.
    (b) What must the local agency do if a CSFP participant is found to 
be committing dual participation? A participant found to be committing 
dual participation must be discontinued from one of the programs (WIC 
or CSFP), or from participation at more than one CSFP site. Whenever an 
individual's participation in CSFP is discontinued, the local agency 
must notify the individual of the discontinuance, in accordance with 
Sec.  247.17. The individual may appeal the discontinuance through the 
fair hearing process, in accordance with Sec.  247.33(a). In accordance 
with Sec.  247.20(b), if the dual participation resulted from the 
participant, or the parent or caretaker of the participant, making 
false or misleading statements, or intentionally withholding 
information, the local agency must disqualify the participant from 
CSFP, unless the local agency determines that disqualification would 
result in a serious health risk. The local agency must also initiate a 
claim against the participant to recover the value of CSFP benefits 
improperly received, in accordance with Sec.  247.30(c).


Sec.  247.20  Program violations.

    (a) What are program violations in CSFP? Program violations are 
actions taken by CSFP applicants or participants, or the parents or 
caretakers of applicants or participants, to obtain or use CSFP 
benefits improperly. Program violations include the following actions:
    (1) Intentionally making false or misleading statements, orally or 
in writing.
    (2) Intentionally withholding information pertaining to eligibility 
in CSFP.
    (3) Selling commodities obtained in the program, or exchanging them 
for non-food items.
    (4) Physical abuse, or threat of physical abuse, of program staff.
    (5) Committing dual participation.
    (b) What are the penalties for committing program violations? If 
applicants or participants, or the parents or caretakers of applicants 
or participants, commit program violations, the State agency may 
require local agencies to disqualify the applicants or participants for 
a period of up to one year. However, if the local agency determines 
that disqualification would result in a serious health risk, the 
disqualification may be waived. For program violations that involve 
fraud, the State agency must require local agencies to disqualify the 
participant from CSFP for a period of up to one year, unless the local 
agency determines that disqualification would result in a serious 
health risk. The State agency must require local agencies to 
permanently disqualify a participant who commits three program 
violations that involve fraud. For purposes of this program, fraud 
includes:
    (1) Intentionally making false or misleading statements to obtain 
CSFP commodities.
    (2) Intentionally withholding information to obtain CSFP 
commodities.
    (3) Selling CSFP commodities, or exchanging them for non-food 
items.
    (c) What must the local agency do to notify the individual of 
disqualification from CSFP? The local agency must provide the 
individual with written notification of disqualification from CSFP at 
least 15 days before the effective date of disqualification. The 
notification must include the effective date and period of 
disqualification, the reason for the disqualification, and a statement 
that the individual may appeal the disqualification through the fair 
hearing process, in accordance with Sec.  247.33(a).


Sec.  247.21  Caseload assignment.

    (a) How does FNS assign caseload to State agencies? Each year, FNS 
assigns a caseload to each State agency to allow persons meeting the 
eligibility criteria listed under Sec.  247.9 to participate in the 
program, up to the caseload limit. To the extent that resources are 
available, FNS assigns caseload to State agencies in the following 
order:
    (1) Base caseload. (i) Each State agency entering its second year 
of program participation receives caseload equal to the amount assigned 
it in its first year of participation.
    (ii) Each State agency that has participated in two or more 
caseload cycles receives caseload in an amount equal to its highest 
average monthly participation in one of the two periods of the previous 
fiscal year listed below. However, the State agency may not receive a 
base caseload in excess of its total caseload assignment for the 
previous cycle. The two periods are:
    (A) The full fiscal year; or
    (B) The final quarter of the fiscal year.
    (2) Additional caseload. Each participating State agency may 
request, and receive, additional caseload to increase service to women, 
infants, and children, and the elderly. Requests by State agencies to 
increase service to women, infants, and children receive priority over 
requests to increase service to the elderly. State agencies which did 
not utilize at least 95 percent of their assigned caseload in one of 
the periods of the previous fiscal year listed under paragraph 
(a)(1)(ii) of this section are not eligible for additional caseload. Of 
the State agency's request for additional caseload, FNS assigns an 
amount that it determines the State needs and can efficiently utilize. 
In making this determination, FNS considers the factors listed below, 
in descending order of importance. If all reasonable requests for 
additional caseload cannot be met, FNS assigns it to those States that 
are most likely to utilize it. The factors are:
    (i) Program participation of women, infants, and children, and the 
elderly in the State, in the previous fiscal year;
    (ii) The percentage of caseload utilized by the State in the 
previous caseload cycle;
    (iii) Program participation trends in the State in previous fiscal 
years; and
    (iv) Other information provided by the State agency in support of 
the request.
    (3) New caseload. Each State agency requesting to begin 
participation in the program, and with an approved State Plan, may 
receive caseload to serve women, infants, and children, and the 
elderly, as requested in the State Plan. State agency requests to 
initiate service to women, infants, and children receive priority over 
requests to initiate service to the elderly. Of the State agency's 
caseload request, FNS assigns caseload in an amount that it determines 
the State needs and can efficiently utilize. This determination is made 
based on information contained in the State Plan and on other relevant 
information. However, if all caseload requests cannot be met, FNS will 
assign caseload to those States that are most likely to utilize it.
    (b) When does FNS assign caseload to State agencies? FNS must 
assign caseload to State agencies by December 31 of each year, or 
within 30 days after enactment of appropriations legislation covering 
the full fiscal year, whichever comes later. Caseload assignments for 
the previous caseload cycle will remain in effect, subject to the 
availability of sufficient funding, until caseload assignments are made 
for the current caseload cycle.
    (c) How do State agencies request additional caseload for the next 
caseload cycle? In accordance with Sec.  247.6(d), a State agency that 
would like additional caseload for the next caseload cycle (beginning 
the following January 1) must submit a request for additional caseload 
by November 5, as an amendment to the State Plan. The State agency must 
also describe plans for serving women, infants, and children, and the 
elderly, at new sites in this submission.

[[Page 62191]]

Sec.  247.22  Allocation and disbursement of administrative funds to 
State agencies.

    (a) What must State agencies do to be eligible to receive 
administrative funds? In order to receive administrative funds, the 
State agency must have signed an agreement with FNS to operate the 
program, in accordance with Sec.  247.4(a)(1), and must have an 
approved State Plan.
    (b) How does FNS allocate administrative funds to State agencies? 
(1) As required by law, each fiscal year FNS allocates to each State 
agency an administrative grant per assigned caseload slot, adjusted 
each year for inflation.
    (2) For fiscal year 2003, the amount of the grant per assigned 
caseload slot is equal to the per-caseload slot amount provided in 
fiscal year 2001, adjusted by the percentage change between:
    (i) The value of the State and local government price index, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30, 2001; and
    (ii) The value of that index for the 12-month period ending June 
30, 2002.
    (3) For subsequent fiscal years, the amount of the grant per 
assigned caseload slot is equal to the amount of the grant per assigned 
caseload slot for the preceding fiscal year, adjusted by the percentage 
change between:
    (i) The value of the State and local government price index, as 
published by the Bureau of Economic Analysis of the Department of 
Commerce, for the 12-month period ending June 30 of the second 
preceding fiscal year; and
    (ii) The value of that index for the 12-month period ending June 30 
of the preceding fiscal year.
    (c) How do State agencies access administrative funds? FNS provides 
administrative funds to State agencies on a quarterly basis, by means 
of a Letter of Credit, unless other funding arrangements have been made 
with FNS. The State agency obtains the funds by electronically 
accessing its Letter of Credit account.


Sec.  247.23  State provision of administrative funds to local 
agencies.

    (a) How much of the administrative funds must State agencies 
provide to local agencies for their use? The State agency must provide 
to local agencies for their use all administrative funds it receives, 
except that the State agency may retain for its own use the amount 
determined by the following formula:
    (1) 15 percent of the first $50,000 received.
    (2) 10 percent of the next $100,000 received.
    (3) 5 percent of the next $250,000 received.
    (4) A maximum of $30,000, if the administrative grant exceeds 
$400,000.
    (b) May a State agency request to retain more than the amount 
determined by the above formula in the event of special needs? Yes, the 
State agency may request approval from FNS to retain a larger amount 
than is allowed under the formula prescribed in paragraph (a) of this 
section. However, in making its request, the State agency must provide 
justification of the need for the larger amount at the State level, and 
must ensure that local agencies will not suffer undue hardship as a 
result of a reduction in administrative funds.
    (c) How must the State agency distribute funds among local 
agencies? The State agency must distribute funds among local agencies 
on the basis of their respective needs, and in a manner that ensures 
the funds will be used to achieve program objectives.


Sec.  247.24  Recovery and redistribution of caseload and 
administrative funds.

    (a) May FNS recover and redistribute caseload and administrative 
funds assigned to a State agency? Yes. FNS may recover and redistribute 
caseload and administrative funds assigned to a State agency during the 
fiscal year. FNS will redistribute these resources to other State 
agencies in accordance with the provisions of 247.21(a) and 247.22(b). 
In reassigning caseload, FNS will use the most up-to-date data on 
participation and the extent to which caseload is being utilized, as 
well as other information provided by State agencies. In instances in 
which FNS recovers caseload slots, the State agency must use 95 percent 
of its original caseload allocation to be eligible for expansion 
caseload.
    (b) Is there a limit on the amount of caseload slots or 
administrative funds that FNS may recover? Yes. Caseload will be 
recovered and reassigned only to the extent permitted by recovered 
administrative funding. FNS will not involuntarily recover caseload 
that would result in the recovery of more than 25 percent of the 
State's administrative funds. However, in instances in which the State 
agency requests that FNS recover any portion of its assigned caseload, 
the 25 percent limitation will not apply.


Sec.  247.25  Allowable uses of administrative funds and other funds.

    (a) What are allowable uses of administrative funds provided to 
State and local agencies?
    Administrative funds may be used for costs that are necessary to 
ensure the efficient and effective administration of the program, in 
accordance with parts 3016 and 3019 of this title. Part 3016 of this 
title contains the rules for management of Federal grants to State, 
local, and Indian tribal governments, and part 3019 of this title 
contains the grants management rules for nonprofit organizations. These 
departmental regulations incorporate by reference OMB Circulars A-87 
(Cost Principles for State and Local Governments) and A-122 (Cost 
Principles for Non-Profit Organizations), which set out the principles 
for determining whether specific costs are allowable. Some examples of 
allowable costs in CSFP include:
    (1) Storing, transporting, and distributing foods.
    (2) Determining the eligibility of program applicants.
    (3) Program outreach.
    (4) Nutrition education.
    (5) Audits and fair hearings.
    (6) Monitoring and review of program operations.
    (7) Transportation of participants to and from the local agency, if 
necessary.
    (b) What are unallowable uses of administrative funds? In addition 
to those costs determined to be unallowable by the principles contained 
in the OMB circulars referenced in paragraph (a) of this section, 
specific examples of unallowable uses of administrative funds in CSFP 
include:
    (1) The cost of alteration of facilities not required specifically 
for the program.
    (2) Actual losses which could have been covered by permissible 
insurance (through an approved self-insurance program or by other 
means).
    (c) What costs are allowable only with prior approval of FNS? 
Capital expenditures, which include the acquisition of facilities or 
equipment, or enhancements to such capital assets, with a cost per unit 
of at least $5,000, are allowable only with prior approval of FNS. 
Examples of equipment include automated information systems, automated 
data processing equipment, and other computer hardware and software.
    (d) What procedures must State and local agencies use in procuring 
property, equipment, or services with program funds, and disposing of 
such property or equipment? The procedures that State and local 
agencies must follow in procuring property, equipment, or services with 
program funds, or disposing of such property or equipment, are 
contained in parts 3016 and 3019 of this title. State, local, and 
Indian tribal governments must comply with part 3016 of this title, 
while

[[Page 62192]]

nonprofit subgrantees must comply with part 3019 of this title. State 
and local agencies may use procurement procedures established by State 
and local regulations as long as these procedures do not conflict with 
Federal regulations. Federal regulations do not relieve State or local 
agencies from responsibilities established in contracts relating to 
procurement of property, equipment, or services. The State agency is 
the responsible authority regarding the settlement of all contractual 
and administrative issues arising out of procurements for the program.
    (e) What is program income and how must State and local agencies 
use it? Program income is income directly generated from program 
activities. It includes, for example, income from the sale of packing 
containers or pallets, and the salvage of commodities. Program income 
does not include interest earned from administrative funds. State and 
local agencies must use program income for allowable program costs, in 
accordance with part 3016 of this title.
    (f) How must State and local agencies use funds recovered as a 
result of claims actions?
    The State agency must use funds recovered as a result of claims 
actions against subdistributing or local agencies in accordance with 
the provisions of Sec.  250.15 of this chapter. The State agency must 
use funds recovered as a result of claims actions against participants 
for allowable program costs. The State agency may authorize local 
agencies to use such funds for allowable program costs incurred at the 
local level.


Sec.  247.26  Return of administrative funds.

    (a) Must State agencies return administrative funds that they do 
not use at the end of the fiscal year? Yes. If, by the end of the 
fiscal year, a State agency has not obligated all of its allocated 
administrative funds, the unobligated funds must be returned to FNS.
    (b) What happens to administrative funds that are returned by State 
agencies at the end of the fiscal year? If, in the following fiscal 
year, OMB reapportions the returned administrative funds, the funds are 
used to support the program. Such funds are not returned to State 
agencies in the form of administrative funds in addition to the 
legislatively mandated grant per assigned caseload slot.


Sec.  247.27  Financial management.

    (a) What are the Federal requirements for State and local agencies 
with regard to financial management? State and local public agencies 
must maintain a financial management system that complies with the 
Federal regulations contained in part 3016 of this title, while 
nonprofit organizations must comply with the Federal regulations 
contained in part 3019 of this title. The State agency's financial 
management system must provide accurate, current, and complete 
disclosure of the financial status of the program, including an 
accounting of all program funds received and expended each fiscal year. 
The State agency must ensure that local agencies develop and implement 
a financial management system that allows them to meet Federal 
requirements.
    (b) What are some of the major components of the State agency's 
financial management system? In addition to other requirements, the 
State agency's financial management system must provide for:
    (1) Prompt and accurate payment of allowable costs.
    (2) Timely disbursement of funds to local agencies.
    (3) Timely and appropriate resolution of claims and audit findings.
    (4) Maintenance of records identifying the receipt and use of 
administrative funds, funds recovered as a result of claims actions, 
program income (as defined under Sec.  247.25(e)), and property and 
other assets procured with program funds.


Sec.  247.28  Storage and inventory of commodities.

    (a) What are the requirements for storage of commodities? State and 
local agencies must provide for storage of commodities that protects 
them from theft, spoilage, damage or destruction, or other loss. State 
and local agencies may contract with commercial facilities to store and 
distribute commodities. The required standards for warehousing and 
distribution systems, and for contracts with storage facilities, are 
included under Sec.  250.14 of this chapter.
    (b) What are the requirements for the inventory of commodities? A 
physical inventory of all USDA commodities must be conducted annually 
at each storage and distribution site where these commodities are 
stored. Results of the physical inventory must be reconciled with 
inventory records and maintained on file by the State or local agency.


Sec.  247.29  Reports and recordkeeping.

    (a) What recordkeeping requirements must State and local agencies 
meet? State and local agencies must maintain accurate and complete 
records relating to the receipt, disposal, and inventory of 
commodities, the receipt and disbursement of administrative funds and 
other funds, eligibility determinations, fair hearings, and other 
program activities. State and local agencies must also maintain records 
pertaining to liability for any improper distribution, use of, loss of, 
or damage to commodities, and the results obtained from the pursuit of 
claims arising in favor of the State or local agency. All records must 
be retained for a period of three years from the end of the fiscal year 
to which they pertain, or, if they are related to unresolved claims 
actions, audits, or investigations, until those activities have been 
resolved. All records must be available during normal business hours 
for use in management reviews, audits, investigations, or reports of 
the General Accounting Office, except medical case records of 
participants (unless they are the only source of certification data).
    (b) What reports must State and local agencies submit to FNS? State 
agencies must submit the following reports to FNS:
    (1) SF-269A, Financial Status Report. The State agency must submit 
the SF-269A, Financial Status Report, to report the financial status of 
the program at the close of the fiscal year. This report must be 
submitted within 90 days after the end of the fiscal year. Obligations 
must be reported for the fiscal year in which they occur. Revised 
reports may be submitted at a later date, but FNS will not be 
responsible for reimbursing unpaid obligations later than one year 
after the end of the fiscal year in which they were incurred.
    (2) FNS-153, Monthly Report of the Commodity Supplemental Food 
Program and Quarterly Administrative Financial Status Report. The State 
agency must submit the FNS-153 on a monthly basis. FNS may permit the 
data contained in the report to be submitted less frequently, or in 
another format. The report must be submitted within 30 days after the 
end of the reporting period. On the FNS-153, the State agency reports: 
(i) The number of program participants in each population category 
(e.g., infants, children, and elderly).
    (ii) The receipt and distribution of commodities, and beginning and 
ending inventories, as well as other commodity data.
    (iii) On a quarterly basis, the cumulative amount of administrative 
funds expended and obligated, and the amount remaining unobligated.
    (3) FNS-191, Racial/Ethnic Group Participation. Local agencies must 
submit a report of racial/ethnic

[[Page 62193]]

participation each year, using the FNS-191.
    (c) Is there any other information that State and local agencies 
must provide to FNS? FNS may require State and local agencies to 
provide data collected in the program to aid in the evaluation of the 
effect of program benefits on the low-income populations served. Any 
such requests for data will not include identification of particular 
individuals.


Sec.  247.30  Claims.

    (a) What happens if a State or local agency misuses program funds? 
If FNS determines that a State or local agency has misused program 
funds through negligence, fraud, theft, embezzlement, or other causes, 
FNS must initiate and pursue a claim against the State agency to repay 
the amount of the misused funds. The State agency will be given the 
opportunity to contest the claim. The State agency is responsible for 
initiating and pursuing claims against subdistributing and local 
agencies if they misuse program funds.
    (b) What happens if a State or local agency misuses program 
commodities? If a State or local agency misuses program commodities, 
FNS may initiate a claim against the State agency to recover the value 
of the misused commodities. The procedures for pursuing claims 
resulting from misuse of commodities are detailed in Sec.  250.15(c) of 
this chapter. Misused commodities include commodities improperly 
distributed or lost, spoiled, stolen, or damaged as a result of 
improper storage, care, or handling. The State agency is responsible 
for initiating and pursuing claims against subdistributing agencies, 
local agencies, or other agencies or organizations if they misuse 
program commodities. The State agency must use funds recovered as a 
result of claims for commodity losses in accordance with Sec.  250.15 
of this chapter.
    (c) What happens if a participant improperly receives or uses CSFP 
benefits through fraud? The State agency must ensure that a local 
agency initiates a claim against a participant to recover the value of 
CSFP commodities improperly received or used if the local agency 
determines that the participant, or the parent or caretaker of the 
participant, fraudulently received or used the commodities. For 
purposes of this program, fraud includes intentionally making false or 
misleading statements, or intentionally withholding information, to 
obtain CSFP commodities, or the selling or exchange of CSFP commodities 
for non-food items. The local agency must advise the participant of the 
opportunity to appeal the claim through the fair hearing process, in 
accordance with Sec.  247.33(a). The local agency must also disqualify 
the participant from CSFP for a period of up to one year, unless the 
local agency determines that disqualification would result in a serious 
health risk, in accordance with the requirements of Sec.  247.20(b).
    (d) What procedures must be used in pursuing claims against 
participants? The State agency must establish standards, based on a 
cost-benefit review, for determining when the pursuit of a claim is 
cost-effective, and must ensure that local agencies use these standards 
in determining if a claim is to be pursued. In pursuing a claim against 
a participant, the local agency must:
    (1) Issue a letter demanding repayment for the value of the 
commodities improperly received or used.
    (2) If repayment is not made in a timely manner, take additional 
collection actions that are cost-effective, in accordance with the 
standards established by the State agency.
    (3) Maintain all records regarding claims actions taken against 
participants, in accordance with Sec.  247.29.


Sec.  247.31  Audits and investigations.

    (a) What is the purpose of an audit? The purpose of an audit is to 
ensure that:
    (1) Financial operations are properly conducted.
    (2) Financial reports are fairly presented.
    (3) Proper inventory controls are maintained.
    (4) Applicable laws, regulations, and administrative requirements 
are followed.
    (b) When may the Department conduct an audit or investigation of 
the program? The Department may conduct an audit of the program at the 
State or local agency level at its discretion, or may investigate an 
allegation that the State or local agency has not complied with Federal 
requirements. An investigation may include a review of any State or 
local agency policies or practices related to the specific area of 
concern.
    (c) What are the responsibilities of the State agency in responding 
to an audit by the Department? In responding to an audit by the 
Department, the State agency must:
    (1) Provide access to any records or documents compiled by the 
State or local agencies, or contractors.
    (2) Submit a response or statement to FNS describing the actions 
planned or taken in response to audit findings or recommendations. The 
corrective action plan must include time frames for implementation and 
completion of actions. FNS will determine if actions or planned actions 
adequately respond to the program deficiencies identified in the audit. 
If additional actions are needed, FNS will schedule a follow-up review 
and allow sufficient time for further corrective actions. The State 
agency may also take exception to particular audit findings or 
recommendations.
    (d) When is a State or local agency audit required? In accordance 
with part 3052 of this title, which contains the Department's 
regulations pertaining to audits of States, local governments, and 
nonprofit organizations, a State or local government agency, or a 
nonprofit organization, that expends $300,000 or more in Federal awards 
in a fiscal year must have a single, or a program-specific, audit 
conducted for that year. The value of CSFP commodities distributed by 
the agency or organization must be considered part of the Federal 
award. Federal regulations do not require agencies and organizations 
that expend less than this amount in Federal awards in a fiscal year to 
have an audit for that year.
    (e) What are the requirements for State or local agency audits? 
State and local agency audits must be conducted in accordance with the 
requirements of part 3052 of this title. State and local agencies are 
responsible for follow-up and corrective actions in response to audit 
findings. The State agency must ensure that local agencies meet audit 
requirements. The State agency must ensure that all State or local 
agency audit reports are available for FNS review.


Sec.  247.32  Termination of agency participation.

    (a) When may a State agency's participation in CSFP be terminated? 
While the following paragraphs describe the circumstances and basic 
procedures in termination of local agency programs, specific actions 
and procedures relating to program termination are more fully described 
in part 3016 of this title.
    (1) Termination by FNS. FNS may terminate a State agency's 
participation in CSFP, in whole or in part, if the State agency does 
not comply with the requirements of this part. FNS must provide written 
notification to the State agency of termination, including the reasons 
for the action, and the effective date.
    (2) Termination by State agency. The State agency may terminate the 
program, in whole or in part, upon

[[Page 62194]]

written notification to FNS, stating the reasons and effective date of 
the action. In accordance with Sec.  247.4(b)(6), which relates to the 
termination of agreements, either party must provide 30 days' written 
notice.
    (3) Termination by mutual agreement. The State agency's program may 
also be terminated, in whole or in part, if both parties agree the 
action would be in the best interest of the program. The two parties 
must agree upon the conditions of the termination, including the 
effective date.
    (b) When may a local agency's participation in CSFP be terminated? 
While the following paragraphs describe the circumstances and basic 
procedures in termination of local agency programs, specific actions 
and procedures relating to program termination are more fully described 
in part 3016 of this title.
    (1) Termination by State agency. The State agency may terminate a 
local agency's participation in CSFP, or may be required to terminate a 
local agency's participation, in whole or in part, if the local agency 
does not comply with the requirements of this part. The State agency 
must notify the local agency in writing of the termination, the reasons 
for the action, and the effective date, and must provide the local 
agency with an opportunity to appeal, in accordance with Sec.  247.35.
    (2) Termination by local agency. The local agency may terminate the 
program, in whole or in part, upon written notification to the State 
agency, stating the reasons and effective date of the action. In 
accordance with Sec.  247.4(b)(6), which relates to the termination of 
agreements, either party must provide 30 days' written notice.
    (3) Termination by mutual agreement. The local agency's program may 
also be terminated, in whole or in part, if both the State and local 
agency agree that the action would be in the best interest of the 
program. The two parties must agree upon the conditions of the 
termination, including the effective date.


Sec.  247.33  Fair hearings.

    (a) What is a fair hearing? A fair hearing is a process that allows 
a CSFP applicant or participant to appeal an adverse action, which may 
include the denial or discontinuance of program benefits, 
disqualification from the program, or a claim to repay the value of 
commodities received as a result of fraud. State and local agencies 
must ensure that CSFP applicants and participants understand their 
right to appeal an adverse action through the fair hearing process, 
which includes providing written notification of the individual's right 
to a fair hearing along with notification of the adverse action. Such 
notification is not required at the expiration of a certification 
period.
    (b) What are the basic requirements the State agency must follow in 
establishing procedures to be used in fair hearings? The State agency 
must establish simple, clear, uniform rules of procedure to be used in 
fair hearings, including, at a minimum, the procedures outlined in this 
section. The State agency may use alternate procedures if approved by 
FNS. The rules of procedure must be available for public inspection and 
copying.
    (c) How may an individual request a fair hearing? An individual, or 
an individual's parent or guardian, may request a fair hearing by 
making a clear expression, verbal or written, to a State or local 
agency official, that an appeal of the adverse action is desired.
    (d) How much time does an individual have to request a fair 
hearing? The State or local agency must allow an individual at least 60 
days from the date the agency mails or gives the individual the 
notification of adverse action to request a fair hearing.
    (e) When may a State or local agency deny a request for a fair 
hearing? The State or local agency may deny a request for a fair 
hearing when:
    (1) The request is not received within the time limit established 
in paragraph (d) of this section.
    (2) The request is withdrawn in writing by the individual 
requesting the hearing or by an authorized representative of the 
individual.
    (3) The individual fails to appear, without good cause, for the 
scheduled hearing.
    (f) Does the request for a fair hearing have any effect on the 
receipt of CSFP benefits? Participants who appeal the discontinuance of 
program benefits within the 15-day advance notification period required 
under Sec. Sec.  247.17 and 247.20 must be permitted to continue to 
receive benefits until a decision on the appeal is made by the hearing 
official, or until the end of the participant's certification period, 
whichever occurs first. However, if the hearing decision finds that a 
participant received program benefits fraudulently, the local agency 
must include the value of benefits received during the time that the 
hearing was pending, as well as for any previous period, in its 
initiation and pursuit of a claim against the participant.
    (g) What notification must the State or local agency provide an 
individual in scheduling the hearing? The State or local agency must 
provide an individual with at least 10 days' advance written notice of 
the time and place of the hearing, and must include the rules of 
procedure for the hearing.
    (h) What are the individual's rights in the actual conduct of the 
hearing? The individual must have the opportunity to:
    (1) Examine documents supporting the State or local agency's 
decision before and during the hearing.
    (2) Be assisted or represented by an attorney or other persons.
    (3) Bring witnesses.
    (4) Present arguments.
    (5) Question or refute testimony or evidence, including an 
opportunity to confront and cross-examine others at the hearing.
    (6) Submit evidence to help establish facts and circumstances.
    (i) Who is responsible for conducting the fair hearing, and what 
are the specific responsibilities of that person? The fair hearing must 
be conducted by an impartial official who does not have any personal 
stake or involvement in the decision and who was not directly involved 
in the initial adverse action that resulted in the hearing. The hearing 
official is responsible for:
    (1) Administering oaths or affirmations, as required by the State.
    (2) Ensuring that all relevant issues are considered.
    (3) Ensuring that all evidence necessary for a decision to be made 
is presented at the hearing, and included in the record of the hearing.
    (4) Ensuring that the hearing is conducted in an orderly manner, in 
accordance with due process.
    (5) Making a hearing decision.
    (j) How is a hearing decision made? The hearing official must make 
a decision that complies with Federal laws and regulations, and is 
based on the facts in the hearing record. In making the decision, the 
hearing official must summarize the facts of the case, specify the 
reasons for the decision, and identify the evidence supporting the 
decision and the laws or regulations that the decision upholds. The 
decision made by the hearing official is binding on the State or local 
agency.
    (k) What is the time limit for making a hearing decision and 
notifying the individual of the decision? A hearing decision must be 
made, and the individual notified of the decision, in writing, within 
45 days of the request for the hearing. The notification must include 
the reasons for the decision.
    (l) How does the hearing decision affect the individual's receipt 
of CSFP benefits? If a hearing decision is in favor of an applicant who 
was denied CSFP benefits, the receipt of benefits must begin within 45 
days from the date that the hearing was requested, if the

[[Page 62195]]

applicant is still eligible for the program. If the hearing decision is 
against a participant, the State or local agency must discontinue 
benefits as soon as possible, or at a date determined by the hearing 
official.
    (m) What must be included in the hearing record? In addition to the 
hearing decision, the hearing record must include a transcript or 
recording of testimony, or an official report of all that transpired at 
the hearing, along with all exhibits, papers, and requests made. The 
record must be maintained in accordance with Sec.  247.29(a). The 
record of the hearing must be available for public inspection and 
copying, in accordance with the confidentiality requirements under 
Sec.  247.36(b).
    (n) What further steps may an individual take if a hearing decision 
is not in his or her favor? If a hearing decision upholds the State or 
local agency's action, the State or local agency must describe to the 
individual any State-level review or rehearing process, and the right 
of the individual to pursue judicial review of the decision.


Sec.  247.34  Management reviews.

    (a) What must the State agency do to ensure that local agencies 
meet program requirements and objectives? The State agency must 
establish a management review system to ensure that local agencies, 
subdistributing agencies, and other agencies conducting program 
activities meet program requirements and objectives. As part of the 
system, the State agency must perform an on-site review of all local 
agencies, and of all storage facilities utilized by local agencies, at 
least once every two years. As part of the on-site review, the State 
agency must evaluate all aspects of program administration, including 
certification procedures, nutrition education, civil rights compliance, 
food storage practices, inventory controls, and financial management 
systems. In addition to conducting on-site reviews, the State agency 
must evaluate program administration on an ongoing basis by reviewing 
financial reports, audit reports, food orders, inventory reports, and 
other relevant information.
    (b) What must the State agency do if it finds that a local agency 
is deficient in a particular area of program administration? The State 
agency must record all deficiencies identified during the review and 
institute follow-up procedures to ensure that local agencies and 
subdistributing agencies correct all deficiencies within a reasonable 
period of time. To ensure improved program performance in the future, 
the State agency may require that local agencies adopt specific review 
procedures for use in reviewing their own operations and those of 
subsidiaries or contractors. The State agency must provide copies of 
review reports to FNS upon request.


Sec.  247.35  Local agency appeals of State agency actions.

    (a) What recourse must the State agency provide local agencies to 
appeal a decision that adversely affects their participation in CSFP? 
The State agency must establish a hearing procedure to allow local 
agencies to appeal a decision that adversely affects their 
participation in CSFP--e.g., the denial or termination of a local 
agency's participation in the program. The adverse action must be 
postponed until a decision on the appeal is made.
    (b) What must the State agency include in the hearing procedure to 
ensure that the local agency has a fair chance to present its case? The 
hearing procedure must provide the local
    (1) Adequate advance notice of the time and place of the hearing.
    (2) An opportunity to review the record before the hearing, and to 
present evidence at the hearing.
    (3) An opportunity to confront and cross-examine witnesses.
    (4) An opportunity to be represented by counsel, if desired.
    (c) Who conducts the hearing and how is a decision on the appeal 
made? The hearing must be conducted by an impartial person who must 
make a decision on the appeal that is based solely on the evidence 
presented at the hearing, and on program legislation and regulations. A 
decision must be made within 60 days from the date of the request for a 
hearing, and must be provided in writing to the local agency.


Sec.  247.36  Confidentiality of applicants or participants.

    (a) Can the State or local agency disclose information obtained 
from applicants or participants to other agencies or individuals? State 
and local agencies must restrict the use or disclosure of information 
obtained from CSFP applicants or participants to persons directly 
connected with the administration or enforcement of the program, 
including persons investigating or prosecuting program violations. The 
State or local agency may exchange participant information with other 
health or welfare programs for the purpose of preventing dual 
participation. In addition, with the consent of the participant, as 
indicated on the application form, the State or local agency may share 
information obtained with other health or welfare programs for use in 
determining eligibility for those programs, or for program outreach. 
However, the State agency must sign an agreement with the administering 
agencies for these programs to ensure that the information will be used 
only for the specified purposes, and that agencies receiving such 
information will not further share it.
    (b) Can the State or local agency disclose the identity of persons 
making a complaint or allegation against another individual 
participating in or administering the program? The State or local 
agency must protect the confidentiality, and other rights, of any 
person making allegations or complaints against another individual 
participating in, or administering CSFP, except as necessary to conduct 
an investigation, hearing, or judicial proceeding.


Sec.  247.37  Civil rights requirements.

    (a) What are the civil rights requirements that apply to CSFP? 
State and local agencies must comply with the requirements of Title VI 
of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), Title IX of 
the Education Amendments of 1972 (20 U.S.C. 1681 et seq.), Section 504 
of the Rehabilitation Act of 1973 (29 U.S.C. 790 et seq.), the Age 
Discrimination Act of 1975 (42 U.S.C. 6101 et seq.), and Titles II and 
III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.). State and local agencies must also comply with the Department's 
regulations on nondiscrimination (Parts 15, 15a, and 15b of this 
title), and with the provisions of FNS Instruction 113-2, including the 
collection of racial/ethnic participation data and public notification 
of nondiscrimination policy. State and local agencies must ensure that 
no person shall, on the grounds of race, color, national origin, age, 
sex, or disability, be subjected to discrimination under the program.
    (b) How does an applicant or participant file a complaint of 
discrimination? CSFP applicants or participants who believe they have 
been discriminated against should file a discrimination complaint with 
the USDA Director, Office of Civil Rights, Room 326W, Whitten Building, 
1400 Independence Avenue, SW., Washington, DC 20250-9410 or telephone 
(202) 720-5964.

    Dated: September 25, 2003.
Eric M. Bost,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 03-27305 Filed 10-30-03; 8:45 am]
BILLING CODE 3410-30-U