[Federal Register Volume 71, Number 103 (Tuesday, May 30, 2006)]
[Rules and Regulations]
[Pages 30561-30563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-8201]



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 Rules and Regulations
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  Federal Register / Vol. 71, No. 103 / Tuesday, May 30, 2006 / Rules 
and Regulations  

[[Page 30561]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210, 220 and 226

RIN 0584-AD68


Disregard of Overpayments in the Child and Adult Care Food 
Program, National School Lunch Program and School Breakfast Program

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This final rule implements a provision of the Child Nutrition 
and WIC Reauthorization Act of 2004 by creating uniform regulations 
related to the disregard of overpayments in the National School Lunch 
Program (NSLP), School Breakfast Program (SBP), and Child and Adult 
Care Food Program (CACFP). As a result, this rule codifies longstanding 
policy related to the disregard of overpayments in the NSLP and SBP, 
and revises CACFP regulations by increasing the threshold for the 
disregard of overpayments determined in management evaluations, reviews 
or audits in a fiscal year to be consistent with the NSLP and SBP.

DATES: The effective date for this rule is June 29, 2006.

FOR FURTHER INFORMATION CONTACT: Keith Churchill, Section Chief, Child 
and Adult Care and Summer Section, Policy and Program Development 
Branch, by telephone at (703) 305-2590.

SUPPLEMENTARY INFORMATION: 

Background

    Section 119(c) of the Child Nutrition and WIC Reauthorization Act 
of 2004 (Pub. L. 108-265) amended section 17(i) of the Richard B. 
Russell National School Lunch Act by allowing the Food and Nutrition 
Service (FNS) and State agencies, when conducting management 
evaluations, reviews, or audits in the CACFP, to disregard an 
overpayment to an institution if it does not exceed an amount that is 
consistent with the disregards allowed in the NSLP and the SBP. The law 
also required FNS and State agencies to recognize the cost of 
collecting small overpayments. As these amendments were effective on 
October 1, 2004, FNS issued guidance informing State agencies of the 
law's changes on September 17, 2004, ``Overpayment in the Child and 
Adult Care Food Program (CACFP)''.
    Current regulations governing the NSLP and SBP allow the State 
agency, FNS, or the Office of the Inspector General (OIG), when 
conducting management evaluations, reviews, or audits, to disregard any 
overpayment if the total overpayment does not exceed $600 in any fiscal 
year. In addition, the current regulations also permit the State agency 
to establish an alternate minimum amount in the case of State agency 
claims in State administered Programs under State law, regulations or 
procedure, not to exceed $600, for which an overpayment may be 
disregarded. These provisions were adopted to relieve FNS and State 
agencies of the financial and administrative burden associated with 
collecting small overpayments. Regardless of the disregard threshold, 
if there is substantial evidence of a violation of criminal law or 
civil fraud statutes, the disregard of an overpayment is prohibited.
    On January 27, 1995, FNS issued ``Clarification of $600 Disregard 
in Coordinated Review Effort and FNS-640 Reporting,'' a policy 
memorandum to NSLP State agencies that clarified questions related to 
the disregard of overpayments when conducting a review. This policy 
memorandum established that disregards may be granted on a per review 
basis; that there is only one disregard per school food authority, per 
fiscal year, per program; that fiscal action must be combined from the 
administrative review and follow-up review(s) conducted in the same 
fiscal year to determine if a disregard is available; and that a review 
is considered to be all the review activity conducted in a school food 
authority in a given fiscal year (including administrative and follow-
up reviews). For example, under this policy, if an overpayment of $400 
is discovered during an administrative review and an overpayment of 
$201 is discovered as part of a related follow-up review during the 
same fiscal year, then the State agency must collect the $601 
overpayment because it exceeds the $600 threshold. Conversely, if an 
overpayment of $300 is discovered during an administrative review and 
an overpayment of $100 is discovered in each of two related follow-up 
reviews during the same fiscal year, the State agency would not be 
required to collect the $500 overpayment, unless required by State law, 
regulation, or procedure. In addition, the policy memorandum 
established that the fiscal year is the year in which the review 
activity was conducted, and not the year for which fiscal action was 
calculated. For instance, if a review of the activity in August 2005 
(FY 2005) was conducted during the month of October 2006 (FY 2007), a 
disregard may be granted for fiscal year 2005. This rule amends NSLP 
and SBP regulations by codifying these longstanding policies and amends 
CACFP regulations to create a uniform requirement for the three 
programs.
    The intent of the provisions outlined in this rule is to create an 
efficient, cost-effective process in collecting overpayments; 
therefore, this rule applies independently to management evaluations, 
reviews and audits, i.e., an overpayment discovered during an 
administrative review would be treated separate and unique from an 
overpayment discovered through an audit during the same fiscal year. 
Overpayments assessed in a management evaluation, review or audit shall 
not be combined but assessed separately and; therefore, the disregard 
is considered for each individual occurrence.

Executive Order 12866

    This final rule has been determined to be significant and was 
reviewed by the Office of Management and Budget (OMB) in conformance 
with Executive Order 12866.

Regulatory Impact Analysis

Need for Action

    A regulatory impact analysis was conducted to determine the 
administrative and economic impacts of the rule. Because data on the 
current level of overclaims and disregards in the CACFP is limited, 
data on overclaims

[[Page 30562]]

and disregards in the school meal programs were used as a proxy for 
estimating the cost of the rule. If disregard patterns for the CACFP 
follow those of the NSLP and the SBP, it is expected that claims 
totaling between $66,000 and $300,000 over a five-year period will no 
longer be collected.

Benefits

    No change in costs for State and local agencies are anticipated due 
to this rule. Federal and State administrative burdens are estimated to 
be minimal, due in part to the fact that this level of disregard is 
already policy for the school meals programs and because of the 
familiarity with the provision by Federal, State and local operators.

Costs

    Based on an assumption that total wages and benefits that may be 
associated with collecting overclaims could total approximately $130 
per hour, five hours spent in processing an overclaim would exceed the 
$600 disregard threshold. Given that the final rule does not change the 
way a State agency assesses or collects claims, it is assumed that the 
increase in the disregard threshold, from $100 to $600, would provide 
useful but modest relief in the cost incurred collecting claims.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Eric M. Bost, Under 
Secretary for Food, Nutrition, and Consumer Services has certified that 
this final rule will not have a significant economic impact on a 
substantial number of small entities. The requirements implemented in 
this rule will create a consistent standard for the disregard of 
overpayments in the child nutrition programs administered by State 
agencies, while maintaining Program integrity. In short, there will be 
no adverse impact on small entities operating one or more of FNS' child 
nutrition programs as a result of this rule.

Unfunded Mandates Reform

    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, the 
Department generally must prepare a written statement, including a 
cost/benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments in the aggregate, or to the private sector, of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of the UMRA generally requires the Department 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) that impose costs on State, local, 
or tribal governments or to the private sector of $100 million or more 
in any one year. This rule is, therefore, not subject to the 
requirements of sections 202 and 205 of the UMRA.

Executive Order 12372

    The Child and Adult Care Food Program, the National School Lunch 
Program, and the School Breakfast Program are listed in the Catalog of 
Federal Domestic Assistance under Nos. 10.558, 10.555, and 10.553, 
respectively. For the reasons set forth in the final rule in 7 CFR part 
3015, subpart V and related Notice published at 48 FR 29114, June 24, 
1983, these programs are included in the scope of Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132. FNS has 
considered the impact of this rule on State and local governments and 
has determined that this rule does not have federalism implications. 
This rule does not impose substantial or direct compliance costs on 
State and local governments. Therefore, under section 6(b) of the 
Executive Order, a federalism summary impact statement is not required.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations, or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the DATES paragraph of this preamble. Prior to 
any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. In the CACFP, the administrative procedures are set 
forth at 7 CFR 226.6(k). In the NSLP and SBP, the administrative 
procedures are set forth at 7 CFR 210.18(q) and 7 CFR 235.11(f).

Civil Rights Impact Analysis

    FNS has reviewed this rule in accordance with the Department 
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify and 
address any major civil rights impacts the rule might have on 
minorities, women, and persons with disabilities. After a careful 
review of the rule's intent and provisions, FNS has determined that 
this final rule will not in any way limit or reduce participants' 
ability to participate in the CACFP, NSLP and SBP on the basis of race, 
color, national origin, sex, age, or disability. FNS found no factors 
that would negatively and disproportionately affect any group of 
individuals.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires that the Office of Management and Budget (OMB) approve 
all collections of information by a Federal agency before they can be 
implemented. Respondents are not required to respond to any collection 
of information unless it displays a current valid OMB control number. 
This rule does not contain information collection requirements subject 
to approval by OMB under the Paperwork Reduction Act of 1995.

Government Paperwork Elimination Act

    FNS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies to provide 
the public the option of submitting information or transacting business 
electronically to the maximum extent possible.

Public Participation

    This action is being finalized without prior notice or public 
comment under authority of 5 U.S.C. 553(b)(3)(A) and (B). FNS has 
determined, in accordance with 5 U.S.C. 553(b), that Notice of Proposed 
Rulemaking and opportunity for public comments is unnecessary and 
contrary to the public interest and, in accordance with 5 U.S.C. 
553(d), finds that good cause exists for making this action effective 
without prior public

[[Page 30563]]

comment. The provisions of this final rule reflect mandatory statutory 
requirements which are non-discretionary. See sec. 119(c), Public Law 
108-265, 118 stat. 753, June 30, 2004. Moreover, by law these 
provisions became effective on October 1, 2004. Id., sec. 502(b)(2).

List of Subjects

7 CFR Part 210

    Children, Commodity School Program, Food assistance programs, 
Grants programs--social programs, National School Lunch Program, 
Nutrition, Reporting and recordkeeping requirements, Surplus 
agricultural commodities.

 7 CFR part 220

    Children, Food assistance programs, Grant programs--social 
programs, Nutrition, Reporting and recordkeeping requirements, School 
Breakfast Program.

 7 CFR part 226

    Accounting, Aged, Day care, Food Assistance programs, Grant 
programs, Grant programs--health, American Indians, Individuals with 
disabilities, Infants and children, Intergovernmental relations, Loan 
programs, Reporting and recordkeeping requirements, Surplus 
agricultural commodities.

0
Accordingly, 7 CFR parts 210, 220, and 226 are amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 42 U.S.C. 1751-1760, 1779.


0
2. In Sec.  210.19, paragraph (d) is amended by removing the fourth and 
fifth sentences and adding in their place four new sentences to read as 
follows:


Sec.  210.19  Additional responsibilities.

* * * * *
    (d) * * * In conducting management evaluations, reviews, or audits 
in a fiscal year, the State agency, FNS, or OIG may disregard an 
overpayment if the overpayment does not exceed $600. A State agency may 
establish, through State law, regulation or procedure, an alternate 
disregard threshold that does not exceed $600. This disregard may be 
made once per each management evaluation, review, or audit per Program 
within a fiscal year. However, no overpayment is to be disregarded 
where there is substantial evidence of violations of criminal law or 
civil fraud statutes.
* * * * *

PART 220--SCHOOL BREAKFAST PROGRAM

0
1. The authority citation for part 220 continues to read as follows:

    Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.

0
2. In Sec.  220.15, paragraph (d) is revised to read as follows:


Sec.  220.15  Management evaluations and audits.

* * * * *
    (d) In conducting management evaluations, reviews, or audits in a 
fiscal year, the State agency, FNS, or OIG may disregard an overpayment 
if the overpayment does not exceed $600. A State agency may establish, 
through State law, regulation or procedure, an alternate disregard 
threshold that does not exceed $600. This disregard may be made once 
per each management evaluation, review, or audit per Program within a 
fiscal year. However, no overpayment is to be disregarded where there 
is substantial evidence of violations of criminal law or civil fraud 
statutes.

PART 226--CHILD AND ADULT CARE FOOD PROGRAM

0
1. The authority citation for part 226 continues to read as follows:

    Authority: Secs 9, 11, 14, 16, and 17, Richard B. Russell 
National School Lunch Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 
1765 and 1766).

0
2. In Sec.  226.8, paragraph (e) is revised to read as follows:


Sec.  226.8  Audits.

* * * * *
    (e) In conducting management evaluations, reviews, or audits in a 
fiscal year, the State agency, FNS, or OIG may disregard an overpayment 
if the overpayment does not exceed $600. A State agency may establish, 
through State law, regulation or procedure, an alternate disregard 
threshold that does not exceed $600. This disregard may be made once 
per each management evaluation, review, or audit per Program within a 
fiscal year. However, no overpayment is to be disregarded where there 
is substantial evidence of violations of criminal law or civil fraud 
statutes.
* * * * *

    Dated: May 18, 2006.
Kate Coler,
Deputy Under Secretary, Food, Nutrition, and Consumer Services.
 [FR Doc. E6-8201 Filed 5-26-06; 8:45 am]
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