[Federal Register Volume 73, Number 244 (Thursday, December 18, 2008)]
[Rules and Regulations]
[Pages 76847-76863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29904]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210 and 245

[FNS-2007-0024]
RIN 0584-AD61


Verification of Eligibility for Free and Reduced Price Meals in 
the National School Lunch and School Breakfast Programs

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim rule.

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SUMMARY: This interim rule implements provisions of the Child Nutrition 
and WIC Reauthorization Act of 2004 relating to verification of 
applications approved for free or reduced price meals in the National 
School Lunch Program and the School Breakfast Program. This interim 
rule includes changes to sample sizes for local education agencies 
(school districts) when conducting verification which include 
alternatives when there is an increase in the number

[[Page 76848]]

of responses to the requests for verification; direct verification 
provisions which allow the local educational agency to contact means-
tested programs to verify the information on applications without 
contacting the applicant household for documentation; and revised 
deadlines for completion of verification efforts. This interim rule 
also establishes a standard sample size of three percent for local 
educational agencies that do not qualify for use of an alternative 
sample size. The direct verification provision will reduce the number 
of households that must be contacted to submit documentation. This 
interim rule incorporates other statutory changes designed to assist 
households in completing the verification process. These changes 
require the local educational agency to have a telephone number that 
households may call, without charge, for questions about verification. 
The local educational agency must also make at least one attempt to 
follow-up with households selected for verification prior to denying 
benefits when the household fails to respond. There is also a provision 
that gives local education agencies the discretion to replace selected 
applications when households are deemed unlikely to respond to the 
verification request. These are safeguards to avoid termination of a 
child's benefits due to misunderstandings or other difficulties that 
may preclude households from effectively complying with the 
verification request. The changes made in this interim rule are 
intended to enhance verification efforts which will improve the 
accuracy of benefit distribution.

DATES: Effective date: This rule is effective February 17, 2009.
    Comment dates: Comments on Rule Provisions: Mailed comments on the 
provisions in this rule must be postmarked on or before March 18, 2009; 
e-mailed or faxed comments must be submitted by 11:59 p.m. March 18, 
2009; and hand-delivered comments must be received by 5 p.m. March 18, 
2009.
    Comments on Paperwork Reduction Act Requirements: Comments on the 
information collection requirements associated with this rule must be 
received by January 20, 2009.

ADDRESSES: The Food and Nutrition Service invites interested persons to 
submit comments on this interim rule. Since comments are being accepted 
simultaneously on several rulemakings, please include the title 
(Verification of Eligibility for Free and Reduced Price Meals in the 
National School Lunch and School Breakfast Programs). Comments may be 
submitted by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the instructions for submitting 
comments.
     Fax: 703-305-2879, attention Robert Eadie.
     Mail: Mr. Robert Eadie, Chief, Policy and Program 
Development Branch, Child Nutrition Division, Food and Nutrition 
Service, Department of Agriculture, 3101 Park Center Drive, Room 640, 
Alexandria, Virginia 22302-1594.
     Hand Delivery or Courier: Deliver comments to 3101 Park 
Center Drive, Room 640, Alexandria, Virginia 22302-1594, during normal 
business hours of 8:30 a.m.-5 p.m.
    All comments submitted in response to this interim rule will be 
included in the record and will be made available to the public. Please 
be advised that the substance of the comments and the identity of the 
individuals or entities submitting the comments will be subject to 
public disclosure. All submissions will be available for public 
inspection at this location Monday through Friday, 8:30 a.m.-5 p.m. The 
Food and Nutrition Service may also make the comments available on the 
Federal eRulemaking portal.

FOR FURTHER INFORMATION CONTACT: Address any questions to Robert M. 
Eadie, Child Nutrition Division, Food and Nutrition Service, USDA, 3101 
Park Center Drive, Alexandria, VA 22302 or by telephone at 703-305-
2590. A regulatory cost-benefit analysis was completed for this rule. 
Single copies may be requested from the Food and Nutrition Service's 
official identified above.

SUPPLEMENTARY INFORMATION:

I. Background

Summary of Changes Affecting Verification Procedures Made by Public Law 
108-265

    The Child Nutrition and WIC Reauthorization Act of 2004 (Pub. L. 
108-265, June 30, 2004) amended Section 9(b) of the Richard B. Russell 
National School Lunch Act (NSLA) concerning verification of households' 
applications for free and reduced price meals in the National School 
Lunch Program (NSLP) and the School Breakfast Program (SBP). In 
sections 104 and 105, Public Law 108-265 added a number of provisions 
and also incorporated into the NSLA provisions concerning verification 
activities that were previously addressed only in regulations (7 CFR 
245.6a) or guidance (primarily an instruction entitled ``Eligibility 
Guidance for School Meals Manual,'' August, 2001). New requirements and 
modifications made by Public Law 108-265 to existing procedures are 
discussed in this preamble.
    The primary changes made by Public Law 108-265 concerning 
verification are:
     Transferring the responsibility for conducting 
verification from the school food authority (SFA) to the local 
educational agency (LEA);
     Establishing a new standard verification sample size of 
three percent which is both the maximum and minimum requirement;
     Reducing sample sizes for LEAs that improve their 
verification response rates;
     Permitting LEAs to replace applications in the sample, on 
a case-by-case basis, when complying with the request for verification 
may pose a particular challenge to the selected household;
     Requiring LEAs to conduct a confirmation review of 
applications selected for verification to check for approval errors;
     Requiring LEAs to have a telephone number that households 
may call, at no charge, for assistance with verification;
     Establishing direct verification methods which use records 
from certain public agencies;
     Requiring follow-up by the LEA with households selected 
for verification; and
     Revising deadlines for completing verification activities.
    This preamble discusses these changes in this order to provide the 
reader with a sequential overview of the verification process and an 
understanding of any new procedures as well as how existing procedures 
are affected. Please note that other related provisions of Public Law 
108-265 concerning free and reduced price eligibility and certification 
are addressed in separate rulemakings.

Implementation Memoranda Issued to Date

    Because the statutory amendments addressed in this interim rule 
became effective on July 1, 2005, the Food and Nutrition Service (FNS) 
issued a series of implementation memoranda, as required by section 
501(a) of Public Law 108-265, to help administering agencies initiate 
implementation of the statutory provisions and assess how these changes 
would affect their existing verification procedures. It was especially 
important for LEAs to know

[[Page 76849]]

how verification efforts conducted for School Year 2004-2005 could 
affect their eligibility for alternative sample sizes in subsequent 
school years. The first memorandum was dated August 25, 2004 (SP-5) 
concerning the period for acceptable verification. Another memorandum 
dated November 15, 2004 (SP-8) concerned direct verification. The 
purpose of that memorandum, which also discussed the provision on 
mandatory direct certification of children who are members of 
households receiving food stamps, was to encourage State child 
nutrition agencies to work with their counterparts in State agencies 
administering means-tested programs that could be sources for direct 
verification. The next memorandum was dated November 19, 2004 (SP-9). 
That memorandum explained that if the non-response rate for School Year 
2004-2005 was less than twenty percent, then the LEA would qualify to 
use an alternative sample size in School Year 2005-2006, the first year 
the new verification procedures were to be followed. It also explained 
that for School Year 2006-2007, an LEA was qualified to use an 
alternative sample size if there was at least a ten percent improvement 
between the non-response rate in School Year 2004-2005 and in School 
Year 2005-2006. Another memorandum was issued on March 10, 2005 (SP-13) 
addressing the new verification activities for LEAs including 
confirmation reviews, substitution of applications and follow-up. An 
April 19, 2005 (SP-14), memorandum discussed State education agency 
agreements with their counterparts to conduct direct verification. 
Other memoranda were issued on August 30, 2005 (SP-16), September 14, 
2005 (SP-22), September 21, 2005 (SP-19), September 26, 2005 (SP-21), 
and September 27, 2005 (SP-18). These memoranda discussed and clarified 
various verification procedures. A July 25, 2006 memorandum (SP-27-
2006) clarified that the standard sample size for verification is both 
a minimum and a maximum. A memorandum dated August 31, 2006 (SP-32-
2006), provided clarification for direct certification. All of these 
memoranda may be found on the Child Nutrition Web site (http://www.fns.usda.gov/cnd.)

Terminology: Responsible Entity

    Public Law 108-265 specified, in section 105(a), that in newly 
designated section 9(b)(3)(D)(ii) of the NSLA, the LEA must conduct the 
verification activities as well as activities related to certifying 
children as eligible for free or reduced price meals or free milk and 
section 108(b) added a definition of LEA in section 12(d)(4) of the 
NSLA. Prior to this amendment, the NSLA indicated that the SFA, which 
is defined only in regulations, had the responsibility for conducting 
certification and verification activities. An SFA, as provided in 
existing regulations at 7 CFR 210.2, is the governing body responsible 
for the administration of one or more schools and which has the legal 
authority to operate the NSLP and SBP in those schools. Because the 
NSLA now specifies that the LEA is responsible for NSLP and SBP 
certification and verification activities, this rule uses the term LEA. 
While this change may only have modest immediate effect in 
implementation and program operations, it is important because it 
recognizes that income eligibility determinations may be used for a 
broad array of educational-related benefits and are no longer used 
exclusively for meal benefits. We note that this distinction was 
discussed in the House Report 108-445, which accompanied H. R. 3873, a 
bill related to the Senate bill which eventually became Public Law 108-
265. That House Report noted that ``[b]ecause eligibility 
determinations* * *are used for purposes that extend beyond the receipt 
of free or reduced-price school meals, the Committee believes that 
school and district administrators, not food service personnel, should 
be held accountable for the accuracy of meal certifications reported to 
the state and the Secretary of Agriculture.''

Terminology: Timing for Acceptable Documentation

    The existing regulations at 7 CFR 245.6a(a)(1) specify the period 
of time for acceptable income documentation; e.g., the household must 
submit information for the most recent full month available. This rule 
adds a paragraph at 7 CFR 245.6a(f)(2) to permit households to submit 
documentation verifying the source, amount and frequency of their 
income for any point in time within that period. Timing for 
documentation for direct verification purposes is discussed in V. 
Direct Verification.

II. Verification Sample Sizes

Background

    Each school year, LEAs are required to verify the eligibility of 
children in a sample of household applications approved for free or 
reduced price meal benefits. Under the existing regulations at 7 CFR 
245.6a(a), the SFA may verify a sample of randomly selected 
applications or a sample of focused applications. Under random 
sampling, all applications have an equal chance of being selected for 
verification and the sample size is the lesser of three percent (3%) or 
3,000 approved applications. Under focused sampling, the sample size is 
the lesser of one percent (1%) or 1,000 of all approved applications 
selected from applications with household monthly income within $100 
($1200 annually) of the free/reduced price income limit PLUS the lesser 
of one-half of one percent (.5%) or 500 applications with a Food Stamp 
Program, Food Distribution Program on Indian Reservations (FDPIR) or 
Temporary Assistance to Needy Families Program (TANF) case number, 
provided in lieu of household income information.
    Section 105(a) of Public Law 108-265 amended section 9(b)(3) of the 
NSLA, 42 U.S.C. 1758(b)(3), by specifying a new standard sample size as 
well as alternative sample sizes for which LEAs may qualify. The law 
also revised the date for determining the sample size.

Date for Selection of Sample Size

    The existing regulatory date for determining the sample size is 
October 31 of the current school year. Public Law 108-265 amended the 
NSLA at section 9(b)(3)(D), 42 U.S.C. 1758(b)(3)(D), to establish 
October 1 of the current school year as the date for determining the 
sample size based on the number of approved free and reduced price meal 
applications on file for the current school year. This action changes 
the date the sample size is determined from October 31 to October 1. 
The earlier date should assist households selected for verification and 
should result in changes in eligibility status being acted upon more 
quickly. The provision on the date for sample size determination may be 
found in this interim rule at 7 CFR 245.6a(a)(5).
    While LEAs must determine the required sample size based on the 
number of applications on file as of October 1, it may be that they 
begin their verification activities prior to October 1. This should 
assist LEAs in completing verification within the required timeframes.

Standard Sample Size

    Section 105(a) of Public Law 108-265 amended section 9(b) of the 
NSLA, which specified that the new standard sample size is the lesser 
of three percent (3%) of all applications approved by the LEA for the 
School Year as of October 1 or 3,000 error prone applications approved 
by the LEA for the School Year as of October 1. Public Law 108-265 also 
added a definition of error prone application at section

[[Page 76850]]

9(b)(3)(D)(i)(I), which is all household applications approved by the 
LEA as of October 1 that indicate monthly income within $100 of the 
monthly limit or annual income within $1200 of the annual limit of the 
applicable income eligibility guidelines. This is similar to the way 
income applications are selected under the existing focused sampling.
    The new standard verification requirement established in Section 
105(a) of Public Law 108-265 amended section 9(b) of the NSLA, which 
concentrates on error prone applications in the interest of improved 
accuracy of eligibility determinations. The definitions of error prone 
applications and standard sample size may be found in this interim rule 
at 7 CFR 245.6a(a)(2) and 7 CFR 245.6a(c)(3), respectively.
    Section 105(a) of Public Law 108-265 amended section 
9(b)(3)(D)(i)(I)(bb) of the NSLA to permit the Secretary to establish 
other criteria for error prone applications in lieu of the error prone 
application standards. At this time, we are not establishing any other 
criteria and are requesting suggestions on potential criteria for error 
prone applications. Some possible parameters include different 
thresholds depending on household size, or different triggers for 
consideration as an error prone application. Commenters should keep in 
mind the limited amounts of household information included on the meal 
benefit application.

Mandatory Standard Sample Size

    The NSLA, as amended by Public Law 108-265, specifies that the 
sample size is three percent or 3,000 applications, whichever is less. 
This is both a minimum and a maximum sample size. Local educational 
agencies may no longer choose to verify a larger sample of applications 
as part of their normal verification activity. This includes LEAs with 
a small number of free or reduced price applications that have 
previously verified all applications.
    However, LEAs are encouraged, on a case-by-case basis, to verify 
``for cause'' any application which is questionable. Verification for 
cause may include situations in which a household reports zero income 
or when the LEA is aware of additional income or persons in the 
household. If the LEA verifies a household's application for cause, the 
household must be notified in accordance with existing regulatory 
procedures and, if there is a decrease in benefits, the household would 
receive a notice of adverse action and would have the opportunity to 
appeal the LEA's decision. This interim rule is codifying this 
procedure at 7 CFR 245.6a(c)(7) which previously was only specified in 
program guidance.

Alternative Sample Sizes

    Section 105(a) of Public Law 108-265 amended section 9(b)(3)(d)(iv) 
to provide two alternative sample sizes available to an LEA which 
qualifies through its efforts to improve the verification response rate 
(see below). The alternative sample sizes available to LEAs that 
qualify are: The lesser of 3,000 or three percent of all approved 
applications selected at random; or the lesser of 1,000 or one percent 
of error prone applications plus the lesser of 500 or one-half of one 
percent (0.5%) of approved applications with a Food Stamp Program, 
FDPIR or TANF case number provided in lieu of income information. These 
alternatives are also based on the number of approved applications as 
of October 1. The alternative sample sizes may be found at 7 CFR 
245.6a(c)(4) in this interim rule.

Completing the Sample Size

    Some LEAs will not have enough error prone applications to meet the 
standard or the 1000/1% element of that alternative sample size, as 
applicable. Section 9(b)(3)(D)(v) of the NSLA, as amended by section 
105(a) of Public Law 108-265, states that the LEA must select 
additional approved applications at random to meet the applicable 
standard sample size or the 1000/1% element of that alternative. This 
provision is included in this interim rule at 7 CFR 245.6a(c)(5).

Qualifications Applicable to All LEAs

    An LEA may qualify for an alternative verification sample size if 
it has a non-response rate for the preceding school year of less than 
twenty percent (20%). This requirement may be found in this interim 
rule at 7 CFR 245.6a(d)(2). In recognition of the effect of a 
household's failure to respond to verification requests, Section 105 of 
Public Law 108-265 added incentives to LEAs to decrease their non-
response rates. In 2002, FNS conducted a review of nearly 3,500 
applications selected for verification in 14 large SFAs. A key finding 
of this review was that non-response to the verification process 
accounted for the most changes in benefits. Seventy-seven to eighty 
percent (77-80%) of reductions/terminations of benefits were the result 
of non-response. In an effort to determine the extent of verification 
non-responses, FNS added a regulatory requirement (68 FR 53483; 
September 11, 2003) that SFAs report information on verification 
activities, including the number of non-responses to their State 
agency. Non-response rates are then reported annually by each State to 
FNS on the FNS-742, the Verification Summary Report. FNS will use the 
data from these reports to determine the effects on changes in non-
response rates as a result of States' efforts to decrease the number of 
children who lose benefits because of the household's failure to 
respond.
    The existing regulations do not define non-response rate. Section 
105 of Public Law 108-265 added a definition of non-response rate. The 
statutory definition of non-response rate is the percentage of approved 
applications for which verification was not obtained after all required 
attempts; this definition may be found at 7 CFR 245.6a(a)(3) of this 
interim rule. (Also see the discussion in this preamble concerning what 
constitutes a non-response for the purposes of the LEAs' obligation for 
follow-up activities.)

Qualifications Applicable to Large LEAs

    Section 105 of Public Law 108-265 amended section 
9(b)(3)(D)(iv)(IV) to provide criteria by which large LEAs may qualify 
for sample size alternatives. A large LEA is defined as one with more 
than 20,000 children approved by application (excluding children 
eligible through the direct certification process) as eligible for free 
or reduced price meals as of October 1 of the school year. To qualify 
for this alternative, a large LEA must have a non-response rate in the 
preceding school year which is at least ten percent (10%) below the 
rate for the second preceding school year. To meet this criterion, a 
large LEA would compare its non-response rates from one school year to 
another and determine if there is adequate improvement (at least ten 
percent (10%)) between the second preceding school year and the 
preceding school year.
    For example, in School Year 2004-2005, the LEA had:
     21,000 children approved for free and reduced price meal 
benefits based on a total of 6,000 approved applications; therefore, 
180 household applications (3% of 6,000) are subject to verification;
     45 households failed to respond to verification requests;
     Therefore, the non-response rate is 25% (45 / 180 as a 
percentage).
    The LEA would then calculate the level of improvement needed for 
School Year 2005-2006 as follows:
     The LEA must improve the non-response by at least 10%, 
with the 10% improvement determined by taking the previous non-response 
rate of 25% and multiplying it by 10%, which is 2.5%;

[[Page 76851]]

     The improvement level of 2.5% is then subtracted from the 
previous non-response rate (25.0% -2.5%) which is 22.5%;
     Therefore, the LEA needs a non-response rate of 22.5% or 
less to meet the 10% minimum improvement level in order to qualify to 
use an alternative sample size.
    In School Year 2005-2006:
     The LEA again had 6,000 approved applications, so the 
sample size is 180 (3% of 6,000);
     The number of non-respondents is 40 which is a non-
response rate of 22.2% (40 / 180 as a percentage);
     22.2% is less than the minimum non-response rate of 22.5% 
needed to qualify for this option; therefore, this LEA may use the 
alternative sample sizes in School Year 2006-07.
    This provision may be found at 7 CFR 245.6a(d)(4) of this interim 
rule.

Qualifying for Alternative Sample Sizes

    As discussed above, Section 105 of Public Law 108-265 permits LEAs 
to qualify for alternative sample sizes by improving the rate of 
household responses to their verification efforts. An LEA must annually 
determine if it can qualify to use an alternative sample size. If the 
LEA does not reevaluate its eligibility for alternative sample sizes on 
an annual basis, it must use the standard sample size in 7 CFR 
245.6a(c)(3) of this interim rule. Once the LEA determines that it 
qualifies, it must notify the State agency of the intended use of an 
alternative sample size, specify which option and indicate the basis 
for qualifying. The State agency may establish a deadline for 
notification and may establish criteria for reviewing and approving use 
of alternative sample sizes. This provision is found at 7 CFR 
245.6a(d)(1) of this interim rule.

Declining and Substituting Applications Selected for Verification

    Section 105 of Public Law 108-265 amended section 9(b)(3)(J) of the 
NSLA to allow an LEA to replace up to five percent of approved 
applications selected for verification upon individual review in 
accordance with criteria established by the Secretary. This provision 
effectively allows the LEA some flexibility in verifying applications 
from families/households that the LEA determines may not be able to 
satisfactorily respond to the verification request because of 
instability or communication difficulties. This should minimize the 
possibility that truly needy families may lose benefits simply due to 
their inability to fully understand the requirements of the 
verification process. This interim rule is adopting this approach as 
the criteria that LEAs would use to remove applications and then select 
substitutes.
    This procedure would be conducted, if the LEA chooses to use this 
option, once the applications are selected for verification. For each 
application removed from the verification sample, the LEA would replace 
it with another approved application. The maximum number of 
replacements is five percent of the sample selected. Prior to any 
contact with the selected households, the LEA would consider which 
households may have difficulties with completing the verification 
process and replace those applications. Replacement applications would 
be selected in accordance with the LEA's applicable procedures (i.e., 
an error-prone application that is selected must be replaced with an 
error-prone application). Once the replacement process is complete, the 
LEA would notify the remaining households of the verification process. 
This provision does not permit an LEA to replace an application once 
the household is notified of its selection for verification. Further, 
this provision does not permit the LEA to eliminate a category of 
applications such as those from a particular group or community. The 
Department of Agriculture (the Department) will provide additional 
assistance to LEAs in selecting specific applications if it proves 
necessary. This provision may be found at 7 CFR 245.6a(e)(2) of this 
interim final rule.

III. Verification Process/Procedures

    Section 105(a) of Public Law 108-265 added provisions concerning 
follow-up with households selected for verification. These provisions 
are designed to improve and streamline the process for LEAs as well as 
to provide additional ways to assist households with completing the 
verification process, and reduce the non-response rate. Section 105(a) 
of Public Law 108-265 also added a requirement that LEAs must review 
applications selected for accuracy of each eligibility determination 
including math or other errors, prior to contacting the household. 
Section 105(a) also added section 9(b)(3)(F) allowing LEAs to use 
direct verification--a process in which information from specific 
means-tested programs is used as the basis for verifying application 
data.

Preliminary/Confirmation Reviews

    Section 105(a) of Public Law 108-265 added a requirement that the 
LEA check the accuracy of the certification before proceeding with 
verification of any application. In the statute, this is referred to as 
a ``preliminary review.'' The Department is using the term 
``confirmation review'' in this preamble and in the regulatory language 
to emphasize that, while this review is the first verification activity 
conducted by the LEA, it is a confirmation of the original decision 
made on the application. The confirmation review must be made by 
someone other than the person who made the original determination. This 
procedure is intended to detect any arithmetic or other errors prior to 
beginning verification so that the LEA can appropriately review the 
documentation submitted by the household. Please note that any LEA or 
school that conducts confirmation reviews of all applications as part 
of its certification process meets this requirement.
    The LEA must document that confirmation reviews were conducted. To 
this end, the prototype free/reduced price application developed by FNS 
includes a signature line for the person who conducted the confirmation 
review. The LEA may also maintain a list of applications and their 
disposition with the reviewer's signature attesting to completing this 
requirement. The person who conducts the confirmation review must not 
be the person who makes the initial eligibility determination. However, 
the provision does not preclude the person who completes the 
confirmation review from conducting the verification process. These 
provisions are found at 7 CFR 245.6a(e)(1) in this interim rule.
    Section 105(a) of Public Law 108-265 also recognizes that some LEAs 
use electronic data systems that provide a high level of accuracy in 
making the initial eligibility determination, in accordance with the 
certification requirements of the NSLP, on applications for free or 
reduced price meals. If an LEA uses an electronic data system that 
rejects inconsistent or incomplete application information and that 
accurately determines eligibility based on income level and household 
size or other information establishing categorical eligibility for free 
meals, it is not subject to the requirement to conduct separate 
confirmation reviews.
    An LEA with such a system must notify the State agency that it is 
not conducting confirmation reviews because its initial eligibility 
system accurately processes applications consistent with the income 
eligibility guidelines. State agencies may require additional 
documentation of the accuracy of the system and may require the LEA to 
conduct confirmation

[[Page 76852]]

reviews if they consider the system to be inadequate. This provision 
may be found at 7 CFR 245.6a(e)(1)(ii) of this interim rule.

Disposition of Applications After the Confirmation Review

    The confirmation review can occur at one of two times--immediately 
after the initial review which makes it part of the certification 
process or as part of the verification process as a double check on 
only those applications selected for verification. When the 
confirmation review is part of the application process, the notice of 
eligibility reflects any adjustments made to the initial determination 
made as a result of the ``up-front'' confirmation review.
    However, when the confirmation review is part of the verification 
process, the following requirements apply--
     If the confirmation review indicates that there should be 
an increase in benefits, the LEA must make the change as soon as 
possible, notify the household and proceed with verification;
     If the confirmation review shows that there should be a 
decrease in benefits from free to reduced price, the LEA should proceed 
with and complete verification before any notification of a new 
eligibility status is given. If the decrease is substantiated by the 
documentation submitted by the household or the household fails to 
respond (subsequent to at least one follow-up attempt by the LEA), the 
LEA will then provide the household with a notice of adverse action 
which will inform the household of the pending action and of their 
appeal rights.
     If the confirmation review indicates that the application 
should have been denied initially, the LEA would remove that 
application from the verification sample, select another like 
application (for example, another error prone application) and would 
provide the household with a notice of adverse action which will inform 
the household of the pending action to terminate their free or reduced 
price benefits and of their appeal rights.
    These procedures are designed to avoid a possible unnecessary 
reduction in benefits. The verification notice requirements are not 
changed by adoption of the confirmation review; that is, the 
verification notice continues to explain that the application was 
selected, to detail the process and required documentation, to assign a 
deadline for receipt of documentation, and to provide a no-charge phone 
number to call for assistance. These provisions may be found at 7 CFR 
245.6a(f) of this interim rule.

Direct Verification: Background

    Section 105(a) of Public Law 108-265 provides for a procedure 
called ``direct verification.'' The NSLA was amended to include, at 
section 9(b)(3)(F), an option for LEAs to directly verify applications 
selected for verification. This procedure is similar to the existing 
direct certification process. Direct verification allows the LEA to 
request information from an agency administering one of the means-
tested programs listed in the NSLA without contacting the household. 
Contact with one of the means-tested programs is the first verification 
effort. Although existing regulations do not specifically include 
direct verification, existing 7 CFR 245.6a(b)(3) provides for use of 
agency records from a State or local agency that administers the Food 
Stamp Program, FDPIR or TANF program which have similar eligibility 
limits and information maintained by the State employment office. This 
procedure is discussed in detail in this preamble under V. Direct 
Verification.

Telephone Assistance With Verification

    As indicated earlier, the existing regulatory provision requiring 
that the LEA notify the household in writing of its selection for 
verification (except for those households' whose eligibility status is 
verified through direct verification) did not change. However, Section 
105(a) of Public Law 108-265 added provisions concerning contacts with 
households selected for verification.
    The existing regulations do not require that the SFA provide a 
telephone number for households to call concerning verification, but 
the prototype application and verification forms as well as guidance 
encourage SFAs to provide a telephone contact for verification 
activities. Section 105(a) of Public Law 108-265 amended the NSLA to 
require that the written notification to households concerning 
verification include a telephone number that the household may call 
without charge. The telephone number could be toll-free. The toll-free 
telephone number must be to a source that can respond to the 
household's questions about the verification process. This provision is 
found at 7 CFR 245.6a(f)(5) of this interim rule.

Requirement for Follow-Up With Non-respondents

    Section 105(a) of Public Law 108-265 also added a requirement that 
the LEA make at least one follow-up attempt to contact any household 
that fails to respond to a request for verification. This rule does not 
specify the method of follow-up or the timing; the follow-up attempt 
may be in writing, via e-mail, through a telephone call or in person. 
The LEA must document the attempt. Many LEAs already perform follow-up 
contacts.
    As permitted in section 9(b)(3)(G)(iv) of the NSLA, this rule 
allows the LEA to contract with a third party to conduct the follow-up 
activity. Any use of a third party is subject to the confidentiality 
requirements in Section 9(b) of the NSLA and 7 CFR Part 245. Any 
contract is also subject to the procurement requirements in existing 7 
CFR 210.21. The provision on third party contracts may be found in 7 
CFR 245.6a(f)(6) of this interim rule. The use of a third party to 
perform follow-up contacts would facilitate this process for LEAs which 
may not have the staff resources to readily absorb this required 
function. It is important to note, however, that the information the 
contractors will be using is subject to the use and disclosure 
requirements in the NSLA and program regulations. All such information 
must be carefully controlled, remains the property of the LEA and may 
not be used by the contractor for any other purpose.

Non-Response in Relation to Follow-Up Contacts

    A non-response, for the purposes of a follow-up contact, would 
arise when the LEA is unable to verify the household's status for 
school meal benefits for which it was certified. A non-respondent 
household would be a household that failed to provide documentation 
that enables the LEA to resolve or confirm its eligibility status.
    Follow-up contacts can assist families in continuing meal benefits 
for their children as well as improve LEAs' verification completion 
rates. Examples of situations which indicate the need for a follow-up 
contact by the LEA would be--
     The household has not, in any way, contacted the LEA 
concerning its initial request for verification documentation.
     The household contacted the LEA and has submitted some but 
not all needed documentation. This could include needed written 
material from the household itself or the inability of the LEA to 
complete a collateral contact. In the latter situation, the household 
may need to indicate another collateral contact or provide other 
written evidence.
     The household contacted the LEA but the communication was

[[Page 76853]]

inconclusive and the LEA needs additional information.
     Information obtained from a public agency is incomplete or 
inconsistent with information on the application.

IV. Deadlines/Extensions

Deadlines for Completing Verification

    The existing regulations establish the deadline for completing 
verification as December 15. Section 105(a) of Public Law 108-265 
changed this date to November 15. This change will result in more 
timely determinations of the accuracy of children's eligibility for 
free or reduced price meals or free milk. Shifting this date closer to 
the beginning of the school year will allow LEAs to more promptly make 
necessary adjustments to eligibility status and thus target meal 
benefits more appropriately. The deadline is found at 7 CFR 
245.6a(b)(1) of this interim rule.
    Please note that the October 31 date for reporting data on the 
number of children eligible for free and reduced price meals and free 
milk has not changed. This date is a point in time used to ensure 
consistent data on program participants. The reference to the 
verification deadline in 7 CFR 210.18(h)(1)(iv) is also revised by this 
interim rule.

Extending the Verification Deadline

    Section 105(a) of Public Law 108-265 also amended the NSLA to allow 
the State agency to extend the verification deadline to December 15 
under criteria established by the Department. The regulations will now 
permit extensions of the verification deadline on a case-by-case basis, 
depending on justification submitted by the LEA. Reasons for extensions 
may include, but are not limited to, strikes or labor disputes or 
natural disasters. This provision is found at 7 CFR 245.6a(b)(2)(i) of 
this interim rule.

Additional Extensions Due to Local Conditions

    Section 105(a) of Public Law 108-265 amended the NSLA to address 
verification alternatives when local conditions warrant. Section 
9(b)(3)(I) specifies that the Department may allow alternatives to the 
sample size, the sample size selection criteria and to the verification 
deadline when a natural disaster, civil disorder, strike or other 
similar conditions exist. This allows LEAs flexibility in completing 
verification activities when circumstances prevent timely or complete 
compliance with the requirements. The law directs the Secretary to 
establish criteria for extensions and alternatives. Requests under this 
provision would be necessary only if the LEA were requesting different 
sample size and selection criteria and/or an extension for completing 
verification beyond December 15. We emphasize that these requests would 
be made on a case-by-case basis and that approval would be given only 
when necessitated by unusual circumstances. Section 245.6a(b)(1)(ii) 
will now allow the State agency to request use of alternative sample 
sizes or sample selection and/or an extension of the deadline beyond 
December 15 through a written request to FNS.

V. Direct Verification

    As discussed briefly above, section 105(a) of Public Law 108-265 
amended section 9(b)(3)(F) of the NSLA to permit LEAs to directly 
verify households through information obtained from the State agency 
administering the Food Stamp Program, FDPIR, TANF or State Medicaid 
programs under title XIX of the Social Security Act (42 U.S.C. 1396 et 
seq.) and any similar income-tested program or other source of 
information determined by the Secretary.
    Direct verification is a procedure that uses information directly 
obtained from an agency that administers a means-tested program (such 
as the Food Stamp Program) or that maintains information about income 
or wages (such as the State unemployment offices). Direct verification 
is similar to using agency records as a means of verification of 
information on a household's application. However, direct verification 
is conducted prior to contacting the household of its selection for 
verification. If the source of the direct verification information 
confirms the household's eligibility status, the household will not 
need to be notified of its selection as verification was completed 
through the agency contacts.
    The use of direct verification can help LEAs in completing the 
verification process in a timely manner and lower the non-response rate 
since households do not need to be contacted if the eligibility status 
can be verified through extant data sources.
    The direct verification process is discussed below as follows: (1) 
Information sources and the age and type of acceptable data; (2) direct 
verification using Food Stamp Program, FDPIR and TANF sources; (3) 
direct verification using state Medicaid program sources; (4) direct 
verification using State Children's Health Insurance Program (SCHIP) 
sources; and (5) using Medicaid/SCHIP information in States with higher 
income limits.

Sources for Direct Verification and Timing

    Section 9(b)(3)(F)(i) of the NSLA specifies that direct 
verification may be achieved through systems of records maintained by 
the public agency administering the Food Stamp Program, FDPIR, TANF, or 
the State Medicaid program. It also permits the Department to include 
similar means-tested programs or sources of information. This interim 
rule incorporates the statutorily identified programs at 7 CFR 
245.6a(g). Please note that while children are categorically eligible 
for free meals if they are in a Food Stamp Program or FDPIR household 
or in most TANF households (see below for a discussion of the 
exception), Medicaid recipients are not categorically eligible. In 
addition, because income eligibility limits for Medicaid vary from 
State to State and may exceed the threshold for free/reduced price meal 
benefits, a State agency must first determine what the limits are in 
its State. It must then determine whether the Medicaid office is able 
to provide household income information or an indication (such as the 
percentage of the Federal poverty line) of whether the household's 
income is within the limits for either free or reduced price benefits. 
These are the first steps in implementing direct verification with 
Medicaid.
    Under the authority in the NSLA, we have determined that SCHIP, 
which is authorized under title XXI of the Social Security Act, should 
be included as a potential source for direct verification as it is an 
adjunct of the Medicaid program. As with the Medicaid program, SCHIP 
recipients are not categorically eligible for free or reduced price 
benefits and the income limits vary by State. Again, the first step for 
a State agency would be to determine how the SCHIP program is 
structured in its state. SCHIP is defined in 7 CFR 245.2 of the 
existing regulations.
    Public Law 108-265 specified that the direct verification 
information from public agencies must be the most recent information 
available. The ``most recently available information'' is described in 
the NSLA as information reflecting program participation or income 
during the 180-day period immediately prior to the date of school meals 
application. The data need only indicate eligibility for the program at 
that point in time, not that the child was certified for that program's 
benefits within the 180-day period.
    In order to be consistent with the documentation permitted for 
households notified of their selection for verification, LEAs have 
flexibility

[[Page 76854]]

with identifying acceptable documentation for direct verification 
purposes. As discussed earlier, household being verified may provide 
documentation for any point in time between the month prior to 
application and the time the household is required to provide income 
documentation. For consistency between verification and direct 
verification activities, this interim rule, at 7 CFR 245.6a(g)(5), 
therefore states that direct verification efforts may use information 
from any point in time between the month prior to application and the 
time direct verification is conducted. In other words, for direct 
verification LEAs must use information (which may never be more than 
180 days old) that is the most recent available information; 
information from any one month from the period one month prior to 
application through the month direct verification is conducted; or 
information for all months from the month prior to application through 
the month direct verification is conducted.

Names Provided to Direct Verification Sources

    LEAs or State agencies conducting direct verification must only 
submit the names of the eligible children and not names of other 
members of the household, such as parents, grandparents or non-school 
age siblings. This provision may be found at 7 CFR 245.6a(g)(1) of this 
interim rule.

How Direct Verification Is Conducted Using Food Stamp Program, FDPIR, 
and TANF Records

    Under section 9(b)(3)(F)(i)(I)-(III) of the NSLA, as amended by 
Public Law 108-265, LEAs may submit a list of identifiers for children 
listed on applications selected for verification to the agencies that 
administer the Food Stamp Program, FDPIR or TANF.
    These programs would then indicate if they have information that 
supports the child's eligibility for free or reduced meal benefits. 
This may be done even if the school meals application does not indicate 
receipt of benefits from one of these programs. This ``direct 
verification'' contact would occur prior to notifying the household of 
its selection for verification. If the data obtained was within the 
time frames discussed above and shows that a child was a member of a 
household participating in one of these programs, the child's 
eligibility for free meals is validated. If data indicates that one 
eligible child is a member of a household participating in the FSP, 
FDPIR, TANF, or Medicaid, all eligible children in that child's 
household are verified. If none of the children's participation is 
confirmed by the direct verification source, regular verification 
procedures must be followed. For consistency, this approach is now 
applied to applications selected for verification that contain case 
numbers. This change may be found at 7 CFR 245.6a(f)(3) in this interim 
rule.
    With respect to the TANF program, eligibility for that program 
continues to be subject to the provision in the NSLA concerning TANF 
eligibility standards in place in 1995. Section 9(d)(2)(C) of the NSLA 
specifies that a child is eligible for free meals if the standards used 
for the State's TANF program are comparable to or more restrictive than 
the eligibility standards in effect on June 1, 1995. Therefore, direct 
verification to determine eligibility for free meals based on TANF 
information may be used only in those States that currently meet this 
criterion or in States that can provide the household's income level or 
indicate that the family's income is less than 130% of the applicable 
poverty guideline. Please note that while this section of the NSLA also 
addresses eligibility for reduced price meals, children in households 
receiving Food Stamp Program, TANF or FDPIR benefits are categorically 
eligible for free meal benefits.

Direct Verification Using State Medicaid Program Sources

    Public Law 108-265 amended the NSLA at section 9(b)(3)(F) to allow 
use of State Medicaid income and program participation information as 
sources of direct verification. The NSLA specifies that eligibility for 
free meals may be confirmed when the Medicaid income limit is 133% or 
less of the official poverty line and that eligibility for reduced 
price meals may be confirmed when the Medicaid income eligibility limit 
is no more than 185% of the official poverty line.
    The LEA may verify children's eligibility for either free or 
reduced price meals based on Medicaid data. Medicaid and SCHIP (as 
added under the discretion provided to the Secretary) eligibility 
standards vary from State to State. If the State's Medicaid limit is 
between 133% and 185% of poverty, the Medicaid/SCHIP agency must also 
be able to provide a household's income and size or the percentage of 
the official poverty line that the household's income represents; 
otherwise, direct verification may not be feasible when there are 
different eligibility standards for receipt of Medicaid.

Verification of Eligibility for Free Meal Benefits

    If the State's Medicaid program's eligibility standards are 133% or 
under of the poverty limits, the LEA can use information from the 
Medicaid agency to verify free status. While the income limit for free 
meals is 130% of the applicable poverty guideline, section 105(a) of 
Public Law 108-265 permits use of the greater percentage. The 133% 
figure was used because this is the Medicaid limit in a number of 
states for school-age children. When the Medicaid agency can identify 
which households are participating, the LEA has documented the child's 
eligibility for free meals. No additional individual documentation is 
needed. In states with Medicaid limits of 133% or below, there is no 
need to have the household's income because eligibility status is 
confirmed solely through Medicaid participation. These provisions may 
be found at 7 CFR 245.6a(g)(3) of this interim rule.

Verification of Eligibility for Free or Reduced Price Benefits

    If the State's Medicaid limit is between 133% and 185% of the 
poverty limits and the Medicaid agency can provide the percentage or 
amount of income used, the LEA could use Medicaid information to verify 
the child's eligibility either for free or for reduced rice benefits, 
depending on the basis for the child's Medicaid eligibility. In these 
states, the agency administering the Medicaid program must be able to 
provide the income amount and household size used to determine Medicaid 
eligibility or the percentage of the applicable poverty guideline for 
that income. That information can be used to confirm the child's status 
for free or reduced price meals, as appropriate. These provisions may 
be found at 7 CFR 245.6a(g)(4) of this interim rule.

Direct Verification Using SCHIP

    Some States have used their SCHIP grants to expand their Medicaid 
coverage for children through higher income limits. Other States have 
separate SCHIP programs. For the latter States, the State agency must 
determine the income limits and establish the same type of parameters 
discussed above for State Medicaid programs.

Resolving Discrepancies Between the Application and Information 
Received Through Direct Verification

    For the purposes of direct verification, the LEA submits the names 
and other identifiers, such as birthdates and addresses for a child 
certified for free or reduced price meals and selected for

[[Page 76855]]

verification. Therefore, direct verification potentially establishes a 
child's participation in one of the eligible programs, thereby 
confirming their eligibility for free or reduced price meals. Any child 
listed on the application who is certified for free or reduced price 
school meals who is established as participating in one or more sources 
of direct verification (within the applicable limits for the various 
programs) is verified. The LEA has completed verification for that 
household and household contact is not required. If the information 
received from sources of direct verification is inconsistent or 
inconclusive, the LEA must notify the household that it is subject to 
verification and the household must provide documentation of their 
income.

Use of Direct Verification Is an LEA Option

    Public Law 108-265 expanded Section 9(b)(3)(F) of the NSLA to 
permit the use of direct verification by LEAs, although it is still 
optional. The law specifies that the decision to use direct 
verification is made at the LEA level. State agencies must support and 
assist any LEA's decision to use direct verification. State agencies 
should also work towards establishing contacts with their state-level 
counterparts to coordinate direct verification use and to develop a 
State-wide system to encourage the use of direct verification by LEAs.
    If an LEA chooses to use direct verification, the State agency must 
work with the LEA in determining the best method for doing direct 
verification and assist in facilitating contacts with State-level 
agencies, as needed, to establish the mechanism for doing direct 
verification. Because administrative systems vary greatly among States, 
the Department is not establishing any specific procedural criteria in 
the regulations for conducting direct verification. This will provide 
State agencies with flexibility in developing procedures that best meet 
their needs.

Agreements To Conduct Direct Verification

    Section 104(b) of Public Law 108-265 amended the Food Stamp Act of 
1977 by adding Section 11(u), 7 U.S.C. 2020 (u), to require an 
agreement between the State agency administering the school meals 
programs and the State agency administering the Food Stamp Program. The 
Food Stamp Act of 1977 requires that State agencies to establish 
procedures to conduct direct verification for children eligible for 
free or reduced price school meals. All States have such agreements in 
place. For direct verification with other programs, the Department 
suggests that the State education agency enter into an agreement 
spelling out procedures, available data, etc., with each different 
State agency that will be a direct verification source.

Additional Programs for Direct Verification

    Public Law 108-265 allows the Secretary to permit direct 
verification with similar means-tested programs or other sources of 
information. Prior to extending direct verification to additional 
programs, the Department would need to determine which programs have 
comparable eligibility standards and which are accessible to State 
agencies and/or LEAs. As mentioned above, we have extended direct 
verification to SCHIP. To assist us in expanding this provision 
further, we are requesting comments on any additional programs that 
could be included as sources for direct verification.

VI. Miscellaneous

Effect of Public Law 108-265 on Existing Verification Provisions

    Some of the existing regulations in 7 CFR 245.6a are modified by 
this interim rule while others are unchanged but may be relocated. 
Under existing regulations, directly certified households are not 
subject to verification because their status was already determined 
through contact with the appropriate agency. This exception is not 
changed. However, the following categories of children were added as 
not subject to verification as authorized by Public Law 108-265--
children who are homeless, as defined under section 725(2) of the 
McKinney-Vento Homeless Assistance Act (42 U.S.C. 11434a(2)); children 
served by a runaway and homeless youth grant program established under 
the Runaway and Homeless Youth Act (42 U.S.C. 5701 et seq.); or 
migratory children as defined in section 1309 of the Elementary and 
Secondary Education Act of 1965 (ESEA) (20 U.S.C. 6399). These groups 
will also be addressed in separate rulemakings. This provision is 
relocated by this interim rule from existing 7 CFR 245.6a(a)(5) to 7 
CFR 245.6a(c)(2).
    Existing regulations also provide for other exceptions from 
verification for children in residential child care institutions and 
schools. Further, LEAs using the special certification/reimbursement 
procedures in 7 CFR 245.9 are not required to conduct verification 
except in the base year when applications are submitted. These 
exceptions remain in effect but are relocated from 7 CFR 245.6a(a)(5) 
to 7 CFR 245.6a(c)(2) by this interim rule.

Clarifying What Information Is Submitted on the Verification Report

    LEAs, through their State agencies, submit the FNS-742, School Food 
Authority Verification Summary Report. We are clarifying, in newly 
redesignated 7 CFR 245.6a(h), that LEAs and State agencies only report 
on statutorily required verification activities. For example, an LEA 
would only report on the results of verifying the required three 
percent (up to 3,000 applications) of error prone applications. The 
verification report would not include any applications verified for 
cause as permitted in 7 CFR 245.6a(c)(7) as set forth in this interim 
rule.

Unchanged Provisions

    The following chart shows other existing verification provisions 
that have been relocated and rewritten to improve their clarity and 
conformity with the provisions revised by this interim rule. These 
policies and procedures provided in these provisions are otherwise 
unchanged.

------------------------------------------------------------------------
          Provision             Existing citation       New citation
------------------------------------------------------------------------
State agency conducting       7 CFR 245.6a(a)       7 CFR
 verification.                 Introductory Text.    245.6a(c)(1)(i).
Approval with essential       7 CFR 245.6a(a)(1)..  7 CFR
 documentation.                                      245.6a(c)(1)(ii).
Notification of households    7 CFR 245.6a(a)(2)    7 CFR 245.6a(f)(1).
 selected for verification.    Introductory Text.
Notification of households/   7 CFR                 7 CFR
 social security numbers.      245.6a(a)(2)(i)       245.6a(f)(1)(i)
                               through (a)(2)(iv).   through (f)(1)(v).
Sources of information......  7 CFR 245.6a(b)       7 CFR 245.6a(a)(7).
                               Introductory Text.
Verification reporting......  7 CFR 245.6a(c).....  7 CFR 245.6a(h).

[[Page 76856]]

 
Nondiscrimination...........  7 CFR 245.6a(d).....  7 CFR 245.6a(i).
Adverse action..............  7 CFR 245.6a(e).....  7 CFR 245.6a(j).
------------------------------------------------------------------------

VII. Procedural Matters

Executive Order 12866

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

Regulatory Impact Analysis

Need for Action
    This interim rule amends regulations to reflect changes made to the 
NSLA by Public Law 108-265, the Child Nutrition and WIC Reauthorization 
Act of 2004, regarding the verification of applications approved for 
free or reduced price meals in the NSLP and SBP. The provisions of this 
interim rule are expected to enhance verification efforts which will 
improve the accuracy of benefits distribution. FNS estimates that the 
net increase in administrative burden from implementing the provisions 
of this interim rule will be outweighed by the benefits of improved 
accuracy in the targeting of benefits.
Benefits
    The interim rule is expected to better target NSLP and SBP benefits 
to eligible children. The rule's requirement that LEAs make greater use 
of an error-prone sampling method to select applications for 
verification is expected to reduce the value of improper federal 
reimbursements. Increased reliance on focused sampling should also 
reduce the loss of benefits to otherwise eligible applicants who fail 
to respond to verification requests. Other provisions, such as moving 
the verification process closer to the beginning of the school year, 
and requiring LEAs to help applicants through the verification process, 
are also expected to better align benefit approval with applicant 
eligibility. Over the fiscal year 2008-2012 period, FNS estimates that 
the verification process will reduce improper federal meal 
reimbursements by $19.7 million. This estimate considers only the 
direct savings that result from recertifying a subset of children whose 
applications were selected for verification. Additional savings are 
expected to follow as the data collected from the verification process, 
and from the FNS' Access, Participation, Eligibility and Certification 
(APEC) study, facilitates the development of guidance, training, and 
policy options to further reduce certification error.
Costs
    FNS estimates that the net increase in administrative burden to 
LEAs will total $0.13 million over the fiscal year 2008-2012 period.

Regulatory Flexibility Act

    This interim rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Nancy Montanez 
Johner, Under Secretary for Food, Nutrition and Consumer Services, has 
certified that this rule will not have a significant economic impact on 
a substantial number of small entities. Local educational agencies 
already must conduct verification of a sample of applications for free 
and reduced school meals. This interim regulation provides additional 
options for local educational agencies that improve their verification 
techniques. The Department of Agriculture (the Department) does not 
anticipate any adverse fiscal impact resulting from implementation of 
this rulemaking; rather, the Department anticipates that benefits will 
be more targeted towards eligible children and that local educational 
agencies will have incentives to work towards improvements in their 
verification efforts to be able to have more flexibility. Although 
there may be some burdens associated with this rule, the burdens would 
not be significant and would be outweighed by the benefits of improved 
accuracy in the targeting of benefits and in enhanced flexibility for 
local school districts.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes a requirement 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 prepares a written statement, including a cost-
benefit analysis. This is done for proposed and final rules that have 
``Federal mandates'' which may result in expenditures of $100 million 
or more in any one year by State, local, or tribal governments, in the 
aggregate, or by the private sector. When this 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. 
It must then adopt the least costly, most cost-effective or least 
burdensome alternative that achieves the objectives of the rule.
    This interim rule contains no Federal mandates of $100 million or 
more in any one year (under regulatory provisions of Title II of the 
UMRA) for State, local, and tribal governments or the private sector. 
Thus, this interim rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Executive Order 12372

    The National School Lunch Program and the School Breakfast Program 
are listed in the Catalog of Federal Domestic Assistance under Nos. 
10.555 and 10.553, respectively. For the reasons set forth in the final 
rule in 7 CFR Part 3015, Subpart V, and final rule related notice 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 regulation 
describing the agency's considerations in terms of the three categories 
called for under section (6)(a)(B) of Executive Order 13132:
Prior Consultation With State Officials
    Prior to drafting this interim final rule, we received input from 
State and local agencies at various times including national and 
regional meetings. The Child Nutrition Programs are State administered, 
federally funded programs. FNS sponsored a meeting in September 2004 to 
brief State agencies on the amendments to the NSLA and Child Nutrition 
Act made by the Child Nutrition and WIC Reauthorization Act of 2004 
(Pub. L. 108-265). FNS received a number of comments from participants 
at that meeting as well as from meetings held within various states. In 
addition, FNS staff had informal and formal discussions with State and 
local officials on an ongoing basis regarding program implementation 
and performance. Upon request,

[[Page 76857]]

representatives of FNS have attended state-sponsored meetings to brief 
both State and local cooperators on the changes and to obtain feedback 
that forms the basis for any discretionary decisions in this rule.
Nature of Concerns and the Need to Issue This Rule
    State and local agencies are generally concerned about the 
paperwork and financial burdens placed on food service to conduct 
verification, especially in light of the potential for larger sample 
sizes and additional follow-up activities while local educational 
agencies are continuing to implement other changes to the verification 
reporting process.
    The issuance of an interim rule was permitted by amendments made to 
the Richard B. Russell National School Lunch Act in section 501(b) of 
Public Law 108-265. This rule implements provision of Public Law 108-
265. FNS plans to assist States with implementing the revised 
verification procedures and to issue additional guidance as needed in 
response to operational issues. The comment period will also allow 
States to share their operational concerns so that problems may be 
addressed in development of the final rule.
Extent to Which We Meet These Concerns
    We believe that we adequately address the issues of paperwork and 
financial burdens by providing State and local flexibility in the 
manner in which local educational agencies implement the required 
verification sample sizes and other required activities. Additionally, 
expansion of the categories of children who are not subject to 
verification reduces the burden placed on local educational agencies 
and households. Those local educational agencies can reduce the number 
of applications/households that are subject to verification by 
qualifying for one of the verification sample size alternatives.
    This rule is intended to have a preemptive effect on any State law 
that conflicts with its provisions or that would otherwise impede its 
full implementation. To the extent the rule includes discretionary 
changes, the Department has established compliance timeframes which 
give due consideration to State agency processes for notification of 
customers and stakeholders for the implementation of the new procedures 
in local offices.

Executive Order 12988

    This interim final rule has been reviewed under Executive Order 
12988, Civil Justice Reform. It 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 impede its full 
implementation. This rule is not intended to have retroactive effect 
unless that is specified in the Dates section of the preamble of the 
rule. Before any judicial challenge to the provisions of this rule or 
the application of its provisions, all administrative procedures that 
apply must be followed. The only administrative appeal procedures 
relevant to this interim rule are the hearings that local educational 
agencies must provide for decisions relating to eligibility for free 
and reduced price meals and free milk which are found at 7 CFR 245.7 
for the NSLP, SBP, and SMP in schools.

Civil Rights Impact Analysis

    FNS has reviewed this interim rule in accordance with the 
Department Regulations 4300-4, ``Civil Rights Impact Analysis,'' to 
identify any major civil rights impacts the rule might have on children 
on the basis of race, color, national origin, sex, age or disability. 
After a careful review of the rule's intent and provisions, FNS has 
determined that this interim rule facilitates the participation of all 
eligible participants and does not establish any new burdens.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chap. 35; see 5 CFR part 1320) this rule contains information 
collections that are subject to review and approval by the Office of 
Management and Budget (OMB) before they can be implemented. FNS invites 
comments on information collection requirements contained in this 
interim rule for which FNS intends to seek approval. Those requirements 
will not become effective until approved by OMB. When these information 
collection requirements have been approved, FNS will publish separate 
action in the Federal Register.
    Comments on the information collection requirements contained in 
this interim rule will be accepted under an abbreviated comment period 
of 30 days. To be assured of consideration, comments must be received 
by January 20, 2009.
    Comments may be sent to the Office of Information and Regulatory 
Affairs (OIRA), either by fax to 202-395-6974 or by e-mail to OIRA 
[email protected] marked ``attention, desk office for FNS.'' 
Please also send a copy of your comments or requests for information 
to: Ms. Lynn Rodgers-Kuperman, Chief, Program Analysis and Monitoring 
Branch, Child Nutrition Division, Food and Nutrition Service, U.S. 
Department of Agriculture, 3101 Park Center Drive, Room 640, 
Alexandria, Virginia 22302. Comments will also be accepted if sent 
through http://www.regulations.gov by 11:59 p.m. on January 20, 2009. 
For further information or copies of the information collection, please 
contact Ms. Rodgers-Kuperman at the above address.
    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. All responses to this Notice 
will be summarized and included in the request for OMB approval and 
will become a matter of public record.
    Title: 7 CFR Part 245 Determining Eligibility for Free and Reduced 
Price Meals and Free Milk in Schools.
    OMB Number: 0584-0026.
    Expiration Date: 01/21/2010 .
    Type of Request: Revision of currently approved information 
collection.
    Abstract: Section 105 of the Child Nutrition and WIC 
Reauthorization Act of 2004 (Pub. L. 108-265), amends section 9(b) of 
the Richard B. Russell National School Lunch Act (42. U.S.C. 1728(a)) 
by revising the requirements and procedures for conducting verification 
of a sample of applications approved for free or reduced price school 
meals. These new requirements are being codified under 7 CFR Part 245, 
Determining Eligibility for Free and Reduced Priced Meals and Milk in 
Schools, and 7 CFR Part 210, National School Lunch Program.
    This interim rule implements direct verification procedures that 
allow local education agencies (LEAs) to request information from a 
State or local agency administering the Food Stamp Program, Food 
Distribution Program on Indian Reservations or Temporary Assistance to 
Needy Families Programs, which have similar eligibility limits without 
contacting the household directly. Without this provision, all 
households would be contacted when selected for verification. Also, 
this rule requires LEAs to follow up with any household

[[Page 76858]]

that fails to respond to a request for verification. The paperwork 
burden for LEAs is due to the requirement to conduct direct 
verification with the Food Stamp Program and because of the requirement 
to conduct follow-up with households that fail to respond to the 
request to provide documentation to verify eligibility.
    Affected Public: Local educational agencies.

                                           Estimated Annualized Burden
----------------------------------------------------------------------------------------------------------------
                                                                     Number of
                                   7 CFR section   Annual No. of   responses per  Average burden   Annual burden
                                                    respondents     respondent     per response
----------------------------------------------------------------------------------------------------------------
Recordkeeping: Local educational
 agencies (LEAs) conduct
 verification using agency
 records
    Currently Approved..........    245.6a(b)(3)          16,342               1             .25         4,085.5
    Total Proposed LEAs.........       245.6a(g)          16,342               1             .33         5,392.9
    Difference..................  ..............  ..............  ..............  ..............        +1,307.4
Reporting: LEAs conduct one
 follow-up with verification non-
 respondents
    Currently Approved..........  ..............               0               0               0               0
    Total Proposed LEAs.........    245.6a(f)(6)           3,824               1             .05           191.2
    Difference..................  ..............  ..............  ..............  ..............          +191.2
                                 -------------------------------------------------------------------------------
        Total New Burden........  ..............  ..............  ..............  ..............        +1,498.6
----------------------------------------------------------------------------------------------------------------

    Estimated Number of Respondents: 16,342.
    Estimated Number of Responses per Respondent: 2.
    Estimated Hours per Response: .09.
    Estimated Total Annual Burden: 1,498.6.

E-Government Act Compliance

    FNS is committed to compliance with the E-Government Act to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

Public Participation

    This interim rule is being published without prior notice or public 
comment under authority of 5 U.S.C. 553(b)(3)(A) and (B). In 
recognition of the need to implement the provisions on verification and 
direct verification, as promptly as possible, in order to reduce the 
burden on participants and local educational agencies, section 
501(b)(4) of Public Law 108-265 allows the Department to issue interim 
rules on these and other provisions in that law. This rule implements a 
number of provisions of Public Law 108-265 which were described in very 
specific statutory language. Consequently, these procedures were 
largely non-discretionary; including standard and alternative 
verification sample sizes, local educational agency qualifications for 
using an alternative sample size, detailed requirements for 
confirmation reviews and household contacts and mandatory dates for 
various aspects of the verification process. Further, due to the 
statutory mandate in section 501(a) of Public Law 108-265 to implement 
these provisions as soon as possible through guidance, these procedures 
have been in effect since School Year 2004-2005. Based on these 
factors, the Department has determined in accordance with 5 U.S.C. 
553(b) that Notice of Proposed Rulemaking and Opportunity for Public 
Comments prior to codification is unnecessary and contrary to the 
public interest. However, this rule is being promulgated as an interim 
rule and, as such, provides for a public comment period of 90 days. 
Comments received during this period will enable the Department to 
make, in the final rule, identified and need changes resulting from the 
experience of local educational agencies.

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 245

    Civil rights, Food assistance programs, Grant programs--education, 
Grant programs--health, Infants and children, Milk, Reporting and 
recordkeeping requirements, School breakfast and lunch programs.

0
Accordingly, 7 CFR Parts 210 and 245 are amended to read as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

0
1. The authority citation for 7 CFR part 210 continues to read as 
follows:

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


0
2. In Sec.  210.18:
0
a. Revise paragraph (h)(1)(iii);
0
b. Amend paragraph (h)(1)(iv) by revising the first sentence and by 
removing the words ``December 15'' from the second sentence and adding 
in their place the words ``November 15''; and
0
c. Revise paragraph (h)(1)(vi).
    The revisions read as follows:


Sec.  210.18  Administrative reviews.

* * * * *
    (h) * * *
    (1) * * *
    (iii) Determine that applications for verification are selected in 
accordance with the applicable procedures in Sec.  245.6a(c) of this 
chapter and that no discrimination exists in the selection process.
    (iv) Establish that verification is completed by November 15 (or 
other date established in accordance with Sec.  245.6a(b)(2)(i) or 
(b)(2)(ii) of this chapter) including any follow-up activities as 
required in Sec.  245.6a(f)(6) of this chapter. * * *
* * * * *
    (vi) Ensure that verification records are maintained as required by 
Sec.  245.6a(i) of this chapter.
* * * * *

PART 245--DETERMINING ELIGIBILITY FOR FREE AND REDUCED PRICE MEALS 
AND FREE MILK IN SCHOOLS

0
1. The authority citation is revised to read as follows:

    Authority: 42 U.S.C. 1752, 1758, 1759a, 1772, 1773, and 1779.


0
2. In Sec.  245.2, revise the definition of Verification to read as 
follows:

[[Page 76859]]

Sec.  245.2  Definitions.

* * * * *
    Verification means confirmation of eligibility for free or reduced 
price benefits under the National School Lunch Program or School 
Breakfast Program. Verification shall include confirmation of income 
eligibility and, at State or local discretion, may also include 
confirmation of any other information required in the application which 
is defined as Documentation in Sec.  245.2. Such verification may be 
accomplished by examining information provided by the household such as 
wage stubs, or by other means as specified in Sec.  245.6a(a)(7). If a 
Food Stamp Program or TANF case number or a FDPIR case number or other 
identifier is provided for a child, verification for such child shall 
only include confirmation that the child is a member of a household 
receiving food stamps, TANF or FDPIR benefits. Verification may also be 
completed through direct contact with one or more of the public 
agencies as specified in Sec.  245.6a(g).
0
3. In Sec.  245.6a:
0
a. revise paragraphs (a) and (b);
0
b. redesignate paragraphs (c), (d) and (e) as paragraphs (h), (i) and 
(j), respectively;
0
c. add new paragraphs (c), (d), (e), (f), and (g); and
0
d. amend newly redesignated paragraph (h) by revising the first 
sentence.
    The revisions and additions read as follows:


Sec.  245.6a  Verification requirements.

    (a) Definitions.
    (1) Eligible programs. For the purposes of this section, the 
following programs qualify as programs for which a case number may be 
provided in lieu of income information and that may be used for direct 
verification purposes:
    (i) The Food Stamp Program established under the Food Stamp Act of 
1977 (7 U.S.C. 2011 et seq.) as defined in Sec.  245.2;
    (ii) The Food Distribution Program on Indian Reservations (FDPIR) 
as defined in Sec.  245.2; and
    (iii) A State program funded under the program of block grants to 
States for temporary assistance for needy families (TANF) as defined in 
Sec.  245.2.
    (2) Error prone application. For the purposes of this section, 
``error prone application'' means an approved household application 
that indicates monthly income within $100 or annual income within 
$1,200 of the applicable income eligibility limit for free or for 
reduced meals.
    (3) Non-response rate. For the purposes of this section, ``non-
response rate'' means the percentage of approved household applications 
for which verification information was not obtained by the local 
educational agency after verification was attempted. The non-response 
rate is reported on the FNS-742 in accordance with paragraph (h) of 
this section.
    (4) Official poverty line. For the purposes of this section, 
``official poverty line'' means that described in section 1902(l)(2)(A) 
of the Social Security Act (42 U.S.C. 1396a(l)(2)(A)).
    (5) Sample size. For the purposes of this section, ``sample size'' 
means the number of approved applications that a local educational 
agency is required to verify based on the number of approved 
applications on file as of October 1 of the current school year.
    (6) School year. For the purposes of this section, a school year 
means a period of 12 calendar months beginning July 1 of any year and 
ending June 30 of the following year.
    (7) Sources of information. For the purposes of this section, 
sources of information for verification may include written evidence, 
collateral contacts, and systems of records as follows:
    (i) Written evidence shall be used as the primary source of 
information for verification. Written evidence includes written 
confirmation of a household's circumstances, such as wage stubs, award 
letters, and letters from employers. Whenever written evidence is 
insufficient to confirm income information on the application or 
current eligibility, the local educational agency may require 
collateral contacts.
    (ii) Collateral contacts are verbal confirmations of a household's 
circumstances by a person outside of the household. The collateral 
contact may be made in person or by phone. The verifying official may 
select a collateral contact if the household fails to designate one or 
designates one which is unacceptable to the verifying official. If the 
verifying official designates a collateral contact, the contact shall 
not be made without providing written or oral notice to the household. 
At the time of this notice, the household shall be informed that it may 
consent to the contact or provide acceptable documentation in another 
form. If the household refuses to choose one of these options, its 
eligibility shall be terminated in accordance with the normal 
procedures for failure to cooperate with verification efforts. 
Collateral contacts could include employers, social service agencies, 
and migrant agencies.
    (iii) Agency records to which the State agency or local educational 
agency may have access are not considered collateral contacts. 
Information concerning income, household size, or Food Stamp Program, 
FDPIR, or TANF eligibility maintained by other government agencies to 
which the State agency, the local educational agency or school can 
legally gain access may be used to confirm a household's income, size, 
or receipt of benefits. Information may also be obtained from 
individuals or agencies serving the homeless, as defined under section 
725(2) of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 
11434a(2)); administering a runaway and homeless youth grant program, 
as established under the Runaway and Homeless Youth Act (42 U.S.C. 
5701); or serving migratory children, as they are defined in section 
1309 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 
6399). Agency records may be used for verification conducted after the 
household has been notified of its selection for verification or for 
the direct verification procedures in paragraph (g) of this section. 
Any information derived from other agencies must be used in accordance 
with the provisions concerning use and disclosure of eligibility 
information found in Sec.  245.6(f) through (i) of this part.
    (iv) Households which dispute the validity of income information 
acquired through collateral contacts or a system of records shall be 
given the opportunity to provide other documentation.
    (b) Deadline and extensions for local educational agencies.
    (1) Deadline. The local education agency must complete the 
verification efforts specified in paragraph (c) of this section not 
later than November 15 of each school year.
    (2) Deadline extensions.
    (i) The local educational agency may request an extension of the 
November 15 deadline, in writing, from the State agency. The State 
agency may approve an extension up to December 15 of the current school 
year due to natural disaster, civil disorder, strike or other 
circumstances that prevent the local educational agency from timely 
completion of verification activities.
    (ii) In the case of natural disaster, civil disorder or other local 
conditions, USDA may substitute alternatives for the verification 
deadline in paragraph (b)(1) of this section.
    (3) Beginning verification activities. The local educational agency 
may conduct verification activity once it begins the application 
approval process for the current school year and has approved 
applications on file. However, the final required sample size must be 
based on the number of approved applications on file as of October 1.

[[Page 76860]]

    (c) Verification requirement.
    (1) General. The local educational agency must verify eligibility 
of children in a sample of household applications approved for free and 
reduced price meal benefits for that school year.
    (i) A State may, with the written approval of FNS, assume 
responsibility for complying with the verification requirements of this 
section on behalf of its local educational agencies. When assuming such 
responsibility, States may qualify, if approved by FNS, to use one of 
the alternative sample sizes provided for in paragraph (c)(4) of this 
section if qualified under paragraph (d) of this section.
    (ii) An application must be approved if it contains the essential 
documentation specified in the definition of Documentation in Sec.  
245.2 and, if applicable, the household meets the income eligibility 
criteria for free or reduced price benefits. Verification efforts must 
not delay the approval of applications.
    (2) Exceptions from verification. Verification is not required in 
residential child care institutions; in schools in which FNS has 
approved special cash assistance claims based on economic statistics 
regarding per capita income; or in schools in which all children are 
served with no separate charge for food service and no special cash 
assistance is claimed. Local educational agencies in which all schools 
participate in the special assistance certification and reimbursement 
alternatives specified in Sec.  245.9 shall meet the verification 
requirement only in those years in which applications are taken for all 
children in attendance. Verification of eligibility is not required of 
households if all children in the household are determined eligible 
based on documentation provided by the State or local agency 
responsible for the administration of the Food Stamp Program, FDPIR or 
TANF or if all children in the household are determined to be homeless, 
as defined under section 725(2) of the McKinney-Vento Homeless 
Assistance Act (42 U.S.C. 11434a(2)); served by a runaway and homeless 
youth grant program established under the Runaway and Homeless Youth 
Act (42 U.S.C. 5701); or are migratory as defined in section 1309 of 
the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6399).
    (3) Standard sample size. Unless eligible for an alternative sample 
size under paragraph (d) of this section, the sample size for each 
local educational agency shall equal the lesser of:
    (i) Three (3) percent of all applications approved by the local 
educational agency for the school year, as of October 1 of the school 
year, selected from error prone applications; or
    (ii) 3,000 error prone applications approved by the local 
educational agency for the school year, as of October 1 of the school 
year.
    (iii) Local educational agencies shall not exceed the standard 
sample size in paragraphs (c)(3)(i) or (c)(3)(ii) of this section, as 
applicable, and, unless eligible for one of the alternative sample 
sizes provided in paragraph (c)(4) of this section, the local 
educational agency shall not use a smaller sample size than those in 
paragraphs (c)(3)(i) or (c)(3)(ii) of this section, as applicable.
    (iv) If the number of error-prone applications exceeds the required 
sample size, the local educational agency shall select the required 
sample at random, i.e., each application has an equal chance of being 
selected, from the total number of error-prone applications.
    (4) Alternative sample sizes. If eligible under paragraph (d) of 
this section for an alternative sample size, the local educational 
agency may use one of the following alternative sample sizes:
    (i) Alternative One. The sample size shall equal the lesser of:
    (A) 3,000 of all applications selected at random from applications 
approved by the local educational agency as of October 1 of the school 
year; or
    (B) Three (3) percent of all applications selected at random from 
applications approved by the local educational agency as of October 1 
of the school year.
    (ii) Alternative Two. The sample size shall equal the lesser of the 
sum of:
    (A) 1,000 of all applications approved by the local educational 
agency as of October 1 of the school year, selected from error prone 
applications or
    (B) One (1) percent of all applications approved by the local 
educational agency as of October 1 of the school year, selected from 
error prone applications PLUS
    (C) The lesser of:
    (1) 500 applications approved by the local educational agency as of 
October 1 of the school year that provide a case number in lieu of 
income information showing participation in an eligible program as 
defined in paragraph (a)(1) of this section; or
    (2) One-half (\1/2\) of one (1) percent of applications approved by 
the local educational agency as of October 1 of the school year that 
provide a case number in lieu of income information showing 
participation in an eligible program as defined in paragraph (a)(1) of 
this section.
    (5) Completing the sample size. When there are an insufficient 
number of error prone applications or applications with case number to 
meet the sample sizes provided for in paragraphs (c)(3) or (c)(4) of 
this section, the local educational agency shall select, at random, 
additional approved applications to comply with the specified sample 
size requirements.
    (6) Local conditions. In the case of natural disaster, civil 
disorder, strike or other local conditions as determined by FNS, FNS 
may substitute alternatives for the sample size and sample selection 
criteria in paragraphs (c)(3) and (c)(4) of this section.
    (7) Verification for cause. In addition to the required 
verification sample, local educational agencies must verify any 
questionable application and should, on a case-by-case basis, verify 
any application for cause such as an application on which a household 
reports zero income or when the local educational agency is aware of 
additional income or persons in the household. Any application verified 
for cause is not considered part of the required sample size. If the 
local educational agency verifies a household's application for cause, 
all verification procedures in this section must be followed.
    (d) Eligibility for alternative sample sizes.
    (1) State agency oversight. At a minimum, the State agency shall 
establish a procedure for local educational agencies to designate use 
of an alternative sample size and may set a deadline for such 
notification. The State agency may also establish criteria for 
reviewing and approving the use of an alternative sample size, 
including deadlines for submissions.
    (2) Lowered non-response rate. Any local educational agency is 
eligible to use one of the alternative sample sizes in paragraph (c)(4) 
of this section for any school year when the non-response rate for the 
preceding school year is less than twenty percent.
    (3) Improved non-response rate. A local educational agency with 
more than 20,000 children approved by application as eligible for free 
or reduced price meals as of October 1 of the school year is eligible 
to use one of the alternative sample sizes in paragraph (c)(4) of this 
section for any school year when the non-response rate for the 
preceding school year is at least ten percent below the non-response 
rate for the second preceding school year.
    (4) Continuing eligibility for alternative sample sizes. The local

[[Page 76861]]

educational agency must annually determine if it is eligible to use one 
of the alternative sample sizes provided in paragraph (c)(4) of this 
section. If qualified, the local educational agency shall contact the 
State agency in accordance with procedures established by the State 
agency under paragraph (d)(1) of this section.
    (e) Activities prior to household notification.
    (1) Confirmation of a household's initial eligibility.
    (i) Prior to conducting any other verification activity, an 
individual, other than the individual who made the initial eligibility 
determination, shall review for accuracy each approved application 
selected for verification to ensure that the initial determination was 
correct. If the initial determination was correct, the local 
educational agency shall verify the approved application. If the 
initial determination was incorrect, the local educational agency must:
    (A) If the eligibility status changes from reduced price to free, 
make the increased benefits immediately available and notify the 
household of the change in benefits; the local educational agency will 
then verify the application;
    (B) if the eligibility status changes from free to reduced price, 
first verify the application and then notify the household of the 
correct eligibility status after verification is completed and, if 
required, send the household a notice of adverse action in accordance 
with paragraph (j) of this section; or
    (C) if the eligibility status changes from free or reduced price to 
paid, send the household a notice of adverse action in accordance with 
paragraph (j) of this section and do not conduct verification on this 
application and select a similar application (for example, another 
error-prone application) to replace it.
    (ii) The requirements in paragraph (e)(1)(i) of this section are 
waived if the local educational agency is using a technology-based 
system that demonstrates a high level of accuracy in processing an 
initial eligibility determination based on the income eligibility 
guidelines for the National School Lunch Program. Any local educational 
agency that conducts a confirmation review of all applications at the 
time of certification meets this requirement. The State agency may 
request documentation to support the accuracy of the local educational 
agency's system. If the State agency determines that the technology-
based system is inadequate, it may require that the local educational 
agency conduct a confirmation review of each application selected for 
verification.
    (2) Replacing applications. The local educational agency may, on a 
case-by-case basis, replace up to five percent of applications selected 
and confirmed for verification. Applications may be replaced when the 
local educational agency determines that the household would be unable 
to satisfactorily respond to the verification request. Any application 
removed shall be replaced with another approved application selected on 
the same basis (i.e., an error-prone application must be substituted 
for a withdrawn error-prone application).
    (f) Verification procedures and assistance for households.
    (1) Notification of selection. Other than households verified 
through the direct verification process in paragraph (g) of this 
section, households selected for verification shall be provided written 
notice that their applications were selected for verification and that 
they are required, by such date as determined by the local educational 
agency, to submit the requested information to verify eligibility for 
free or reduced price meals. Any communications with households 
concerning verification must be in an understandable and uniform format 
and, to the maximum extent practicable, in a language that parents and 
guardians can understand. The written notice shall also include a 
telephone number for assistance in accordance with paragraph (f)(5) of 
this section. These households shall be advised of the type or types of 
information and/or documents acceptable to the school. This information 
must include a social security number for each adult household member 
or an indication that such member does not have one. Local educational 
agencies must inform selected households that:
    (i) Section 9 of the Richard B. Russell National School Lunch Act 
requires that, unless the child's Food Stamp Program/FDPIR case number 
or other FDPIR identifier or TANF case number was provided, households 
selected for verification must provide the social security number of 
each adult household member;
    (ii) In an adult member does not posses a social security number, 
that adult member must indicate that s/he does not possess one;
    (iii) Provision of a social security number is not mandatory but if 
a social security number is not provided for each adult household 
member or an indication is not made that he/she does not possess one, 
benefits will be terminated;
    (iv) The social security numbers may be used to identify household 
members in carrying out efforts to verify the correctness of 
information stated on the application and continued eligibility for the 
program. These verification efforts may be carried out through program 
reviews, audits, and investigations and may include contacting offices 
administering means-tested programs or the State employment security 
office and checking documentation produced by household members to 
prove the amount of income received. These verification efforts may 
also include contacting employers to determine income.
    (v) The provisos in paragraphs (f)(1)(i) through (f)(1)(iv) of this 
section must be provided to the attention of each adult household 
member disclosing his/her social security number. State agencies and 
local educational agencies must ensure that the notice complies with 
section 7 of Public Law 93-579 (Privacy Act of 1974).
    (vi) Households notified of their selection for verification must 
also be informed that, in lieu of any information that would otherwise 
be required, they can submit proof that the children are members of a 
household receiving assistance under the Food Stamp Program, FDPIR or 
TANF as described in paragraph (f)(3) of this section to verify the 
free meal eligibility of a child who is a member of a household 
receiving assistance under the Food Stamp Program, FDPIR or TANF 
household. Households must also be informed that, in lieu of any 
information that would otherwise be required, they may request that the 
local educational agency contact the appropriate officials to confirm 
that their children are homeless, as defined under section 725(2) of 
the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11434a(2)); are 
served by a runaway and homeless youth grant program established under 
the Runaway and Homeless Youth Act (42 U.S.C. 5701 et seq.); or are 
migratory as defined in section 1309 of the Elementary and Secondary 
Education Act of 1965 (20 U.S.C. 6399). Households notified of their 
selection for verification shall be advised that failure to cooperate 
with verification efforts will result in the termination of benefits.
    (2) Documentation timeframe. Households selected and notified of 
their selection for verification must provide documentation of income. 
The documentation must indicate the source, amount and frequency of all 
income and can be for any point in time between the month prior to 
application for school meal benefits and the time

[[Page 76862]]

the household is requested to provide income documentation.
    (3) Food Stamp FDPIR or TANF recipients. On applications where 
households have furnished Food Stamp Program or TANF case numbers or 
FDPIR case numbers or other FDPIR identifiers, verification shall be 
accomplished by confirming with the Food Stamp Program, FDPIR, or TANF 
office that at least one child who is eligible because a case number 
was furnished, is a member of a household participating in one of the 
eligible programs in paragraph (a)(1) of this section. The household 
may also provide a copy of ``Notice of Eligibility'' for the Food Stamp 
Program, FDPIR or the TANF Program or equivalent official documentation 
issued by the Food Stamp Program, FDPIR or TANF office which confirms 
that at least one child who is eligible because a case number was 
provided is a member of a household receiving assistance under the Food 
Stamp Program, FDPIR or the TANF program. An identification card for 
these programs is not acceptable as verification unless it contains an 
expiration date. If it is not established that at least one child is a 
member of a household receiving assistance under the Food Stamp 
Program, FDPIR or the TANF program (in accordance with the timeframe in 
paragraph (f)(2) of this section), the procedures for adverse action 
specified in paragraph (j) of this section must be followed.
    (4) Household cooperation. If a household refuses to cooperate with 
efforts to verify, eligibility for free or reduced price benefits shall 
be terminated in accordance with paragraph (j) of this section. 
Households which refuse to complete the verification process and which 
are consequently determined ineligible for such benefits shall be 
counted toward meeting the local educational agency's required sample 
of verified applications.
    (5) Telephone assistance. The local educational agency shall 
provide a telephone number to households selected for verification to 
call free of charge to obtain information about the verification 
process. The telephone number must be prominently displayed on the 
letter to households selected for verification.
    (6) Followup attempts. The local educational agency shall make at 
least one attempt to contact any household that does not respond to a 
verification request. The attempt may be through a telephone call, e-
mail, mail or in person and must be documented by the local educational 
agency. Non-response to the initial request for verification includes 
no response and incomplete or ambiguous responses that do not permit 
the local educational agency to resolve the children's eligibility for 
free or reduced price meal and milk benefits. The local educational 
agency may contract with another entity to conduct followup activity in 
accordance with Sec.  210.21 of this chapter, the use and disclosure of 
information requirements of the Richard B. Russell National School 
Lunch Act and this section.
    (7) Eligibility changes. Based on the verification activities, the 
local educational agency shall make appropriate modifications to the 
eligibility determinations made initially. The local educational agency 
must notify the household of any change. Households must be notified of 
any reduction in benefits in accordance with paragraph (j) of this 
section. Households with reduced benefits or that are longer eligible 
for free or reduced price meals must be notified of their right to 
reapply at any time with documentation of income or participation in 
one of the eligible programs in paragraph (a)(1) of this section.
    (g) Direct verification. Local educational agencies may conduct 
direct verification activities with the eligible programs defined in 
paragraph (a)(1) of this section and with the public agency that 
administers the State plan for medical assistance under title XIX of 
the Social Security Act (42 U.S.C. 1396 et seq.), (Medicaid), and under 
title XXI of the Social Security Act (42 U.S.C. 1397aa et seq.), the 
State Children's Health Insurance Program (SCHIP) as defined in Sec.  
245.2. Records from the public agency may be used to verify income and 
program participation. The public agency's records are subject to the 
timeframe in paragraph (g)(5) of this section. Direct verification must 
be conducted prior to contacting the household for documentation.
    (1) Names submitted. The local educational agency must only submit 
the names of school children certified for free or reduced price meal 
benefits or free milk to the agency administering an eligible program, 
the Medicaid program or the SCHIP program. Names and other identifiers 
of adult or non-school children must not be submitted for direct 
verification purposes.
    (2) Eligible programs. If information obtained through direct 
verification of an application for free or reduced price meal benefits 
indicates a child is participating in one of the eligible programs in 
paragraph (a)(1) of this section, no additional verification is 
required.
    (3) States with Medicaid Income Limits of 133%. In States in which 
the income eligibility limit applied in the Medicaid program or in 
SCHIP is not more than 133% of the official poverty line or in States 
that otherwise identify households that have income that is not more 
than 133% of the official poverty line, records from these agencies may 
be used to verify eligibility. If information obtained through direct 
verification with these programs verifies the household's eligibility 
status, no additional verification is required.
    (4) States with Medicaid Income Limits between 133%-185%. In States 
in which the income eligibility limit applied in the Medicaid program 
or in SCHIP exceeds 133% of the official poverty line, direct 
verification information must include either the percentage of the 
official poverty line upon which the applicant's Medicaid participation 
is based or Medicaid income and Medicaid household size in order to 
determine that the applicant is either at or below 133% of the Federal 
poverty line, or is between 133% and 185% of the Federal poverty line. 
Verification for children approved for free meals is complete if 
Medicaid data indicates that the percentage is at or below 133% of the 
Federal poverty line. Verification for children approved for reduced 
price meals is complete if Medicaid data indicates that the percentage 
is at or below 185% of the Federal poverty line. If information 
obtained through direct verification with these programs verifies 
eligibility status, no additional verification is required.
    (5) Documentation timeframe. For the purposes of direct 
verification, documentation must be the most recent available but such 
documentation must indicate eligibility for participation or income 
within the 180-day period ending on the date of application. In 
addition, local educational agencies may use documentation, which must 
be within the 180-day period ending on the date of application, for any 
one month or for all months in the period from the month prior to 
application through the month direct verification is conducted. The 
information provided only needs to indicate eligibility for 
participation in the program at that point in time, not that the child 
was certified for that program's benefits within the 180-day period.
    (6) Incomplete information. If it is the information provided by 
the public agency does not verify eligibility, the local educational 
agency must conduct verification in accordance with paragraph (f) of 
this section. In addition, households must be able to dispute the 
validity of income information acquired through direct verification and 
shall be

[[Page 76863]]

given the opportunity to provide other documentation.
    (h) Verification reporting and recordkeeping requirements. By March 
1, each local educational agency must report information related to its 
annual statutorily required verification activity, which excludes 
verification conducted in accordance with paragraph (c)(7) of this 
section, to the State agency in accordance with guidelines provided by 
FNS.
* * * * *

    Dated: December 8, 2008.
Nancy Montanez Johner,
Under Secretary Food, Nutrition and Consumer Services.
[FR Doc. E8-29904 Filed 12-17-08; 8:45 am]
BILLING CODE 3410-30-P