[Federal Register Volume 79, Number 204 (Wednesday, October 22, 2014)]
[Proposed Rules]
[Pages 63224-63256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24613]



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Vol. 79

Wednesday,

No. 204

October 22, 2014

Part II





 Department of Agriculture





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 Food and Nutrition Service





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7 CFR Parts 250 and 251





 Requirements for the Distribution and Control of Donated Foods; 
Proposed Rule

  Federal Register / Vol. 79 , No. 204 / Wednesday, October 22, 2014 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 250 and 251

RIN 0584-AE29


Requirements for the Distribution and Control of Donated Foods

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to revise and clarify requirements to 
ensure that USDA donated foods are distributed, stored, and managed in 
the safest, most efficient, and cost-effective manner, at State and 
recipient agency levels. The rule would also reduce administrative and 
reporting requirements for State distributing agencies, revise or 
clarify regulatory provisions relating to accountability for donated 
foods, and rewrite much of the regulations in a more user-friendly, 
``plain language,'' format. Lastly, the rule proposes to revise and 
clarify specific requirements to conform more closely to related 
requirements elsewhere in the Code of Federal Regulations. In 
formulating the proposals, the Food and Nutrition Service (FNS) has 
utilized input received from program administrators, industry 
representatives, and other organizations at national conferences and 
other meetings, and through email or other routine communications with 
such parties.

DATES: To be assured of consideration, comments must be received on or 
before January 20, 2015.

ADDRESSES: The Food and Nutrition Service invites interested persons to 
submit comments on this proposed rule. You may submit comments, 
identified by RIN number 0584-AE29, by any of the following methods:
    Email: Send written comments to [email protected]. 
Include RIN number 0584-AE29 in the subject line of the message.
    Mail: Send written comments to Dana Rasmussen, Branch Chief, Policy 
Branch, Food Distribution Division, Food and Nutrition Service, U.S. 
Department of Agriculture, Room 500, 3101 Park Center Drive, 
Alexandria, Virginia 22302-1594.
    Hand Delivery or Courier: Deliver written comments to the above 
address.
    Federal eRulemaking Portal: Go to http://www.regulations.gov. 
Follow the online instructions for submitting comments.
    Further information on the submission of comments or the review of 
comments submitted may be found under Part III, Procedural Matters, 
under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Dana Rasmussen at the above address or 
telephone (703) 305-2662, or by email at [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Department of Agriculture's (the Department or USDA) Food and 
Nutrition Service (FNS) provides food to State distributing agencies 
for use in food assistance programs as authorized in the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1751 et seq.), the 
Emergency Food Assistance Act of 1983 (7 U.S.C. 7501, et seq.), the 
Food and Nutrition Act of 2008 (7 U.S.C. 2011, et seq.), the 
Agriculture and Consumer Protection Act of 1973 (7 U.S.C. 612c note), 
the Older Americans Act of 1965 (42 U.S.C. 3001, et seq.), and the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 
U.S.C. 5121, et seq.). State distributing agencies, in turn, distribute 
the donated foods (which are also referred to as USDA Foods) to 
recipient agencies (such as school food authorities, food banks, and 
food pantries) which provide assistance to eligible persons or 
households in specific food assistance programs, to needy persons 
served by charitable institutions, or to persons victimized by a 
disaster or situation of distress. The general regulations for the 
storage, distribution, and control of donated foods by State 
distributing agencies and recipient agencies are included in 7 CFR part 
250. Other Federal regulations include requirements specific to 
particular food assistance programs that receive donated foods--e.g., 7 
CFR part 251 for The Emergency Food Assistance Program (TEFAP) and 7 
CFR part 210 for the National School Lunch Program (NSLP).
    Following the enactment of the Commodity Distribution Reform Act 
and WIC Amendments of 1987, (7 U.S.C. 612c note), hereinafter referred 
to as the Commodity Distribution Reform Act, a final rule was issued in 
October 1989 amending 7 CFR part 250 to require State distributing 
agencies to evaluate the efficiency and cost-effectiveness of their 
method of distribution of donated foods to recipient agencies (54 FR 
42476). The amended regulations required distributing agencies to 
utilize a commercial storage and distribution system, if such system 
was determined to be more cost-effective. As a result, most State 
distributing agencies currently procure the services of commercial 
storage facilities to store donated foods and distribute them to 
recipient agencies, or permit direct shipments from vendors of donated 
foods to recipient agencies, the contracted commercial storage 
facilities of such agencies, or to processors for processing of donated 
foods into end products. However, for donated foods distributed in 
NSLP, most school food authorities must pay a charge to help meet 
storage and distribution costs for donated foods. The charge imposed on 
school food authorities varies widely from State to State. This rule 
proposes to revise current requirements in 7 CFR part 250 to ensure 
that State distribution systems provide the most efficient and cost-
effective service for school food authorities in provision of donated 
foods, while reducing the administrative burden on distributing 
agencies in providing such service.
    In 2002, the Department, in collaboration with State agencies and 
school food authorities, developed procedures and instructions for 
responding to donated foods subject to a food recall. Such procedures 
and instructions ensure that donated foods subject to a food recall are 
isolated, inspected, and recovered in an expeditious manner. This rule 
proposes to include a section on donated food safety and disposition, 
and to require that State distributing agency agreements and contracts 
include provisions to ensure compliance with all applicable Federal, 
State or local requirements relating to food safety and food recalls.
    In October 2002, 7 CFR part 250 was amended to permit school food 
authorities in NSLP, as well as other recipient agencies that use 
donated foods, to provide meals to recipients, store donated foods 
together with commercially purchased foods, and maintain a single 
inventory record of the donated and purchased foods (67 FR 65015). The 
single inventory management option reduced the workload for school food 
authorities in control and monitoring of their food inventories. In 
August 2008, 7 CFR part 250 was amended to further clarify the single 
inventory management option for school food authorities, and to revise 
other requirements to ensure that such entities receive the full 
benefit of the donated foods provided in NSLP (73 FR 46189). However, 
some confusion still exists regarding the application of the single 
inventory management option. This rule proposes to further clarify 
storage and inventory management requirements at the distributing and 
recipient agency levels.

[[Page 63225]]

    In order to ensure compliance with requirements for the processing 
of donated foods, the State distributing agency must currently conduct 
an on-site review of in-State processors at least once every two years. 
This rule proposes to remove this requirement, which is burdensome and 
costly for distributing agencies, and to require instead that in-State 
processors obtain independent Certified Public Accountant (CPA) audits, 
as currently required of multi-State processors. The rule would also 
remove requirements for the distributing agency in verification of 
sales of processed end products, and in reporting acceptability of 
donated foods to FNS.
    The Department has developed instructions and guidance in areas of 
donated food distribution related to food recalls, the use of donated 
foods in disaster situations, ensuring that restitution is made for 
donated food losses, shipment and receipt of donated foods, and options 
in the processing of donated foods. This rule proposes to include 
references to these materials to help the reader better understand 
standards and procedures relating to specific aspects of the 
distribution and control of donated foods. This rule also proposes to 
provide references to other applicable Federal regulations to help the 
reader identify Federal requirements affecting the distribution and 
control of donated foods that are beyond the scope of this proposed 
rule. Lastly, the rule proposes to rewrite and restructure much of 7 
CFR part 250 in a more user-friendly, ``plain language,'' format. 
Specific proposals for change or clarification are discussed more fully 
in the next section of the preamble.

II. Discussion of the Rule's Provisions

7 CFR Part 250

A. Subpart A--General Purpose and Administration

    We propose to completely revise current Subpart A of 7 CFR part 250 
to more clearly present the general purpose and use of donated foods, 
the definitions applicable to 7 CFR part 250, the responsible 
administrative agencies in the distribution and control of donated 
foods at Federal and State levels, and civil rights requirements. Some 
of these requirements are located in current Subpart B. Accordingly, we 
propose to change the heading of Subpart A to General Purpose and 
Administration, with new sections as described in the following 
paragraphs.
1. Purpose and Use of Donated Foods, Sec.  250.1
    In Sec.  250.1, we propose to describe the purpose of donated 
foods, the general requirements for their use, and the legislative 
sanctions that apply in the event that they are used improperly. In 
Sec.  250.1(a), we indicate that the Department purchases foods for 
donation in specific food assistance programs or to provide assistance 
to needy persons, in accordance with legislation authorizing such 
assistance in specific programs or providing for removal of market 
surpluses and support of food prices.
    In Sec.  250.1(b), we propose to include the stipulation, in 
current Sec.  250.13(a)(1), that donated foods must be distributed and 
used in accordance with the requirements of 7 CFR part 250. We propose 
to indicate that other Federal regulations also apply to specific 
programs (e.g., 7 CFR part 251 includes requirements for donated foods 
provided in TEFAP). We propose to include the provision, in current 
Sec.  250.13(a)(7), that permits donated foods to be used in activities 
designed to test their effective use in specific programs (e.g., in 
nutrition classes or cooking demonstrations). However, we propose to 
remove the need for prior approval to permit such use.
    In accordance with current Sec.  250.13(a)(1)(ii), donated foods 
may not be sold, exchanged, or otherwise disposed of without prior 
approval of the Department. And, in accordance with current Sec.  
250.15(a)(3), recipients may not be required to make any payments, or 
perform any services, in connection with the receipt of donated foods. 
We propose to include these requirements in Sec.  250.1(b) of this 
proposed rule, with some clarification. We propose to prohibit the 
sale, exchange, or other disposition of donated foods, or their use to 
require recipients to make any payments, or perform any services, 
except as specifically permitted in 7 CFR part 250, or in other Federal 
regulations. We also propose to include the requirement, in current 
Sec.  250.15(a)(3), that donated foods may not be used to solicit 
voluntary contributions, except for donated foods provided in the 
Nutrition Services Incentive Program (NSIP), which was formerly called 
the Nutrition Program for the Elderly.
    In Sec.  250.1(c), we propose to include, in streamlined form, the 
sanctions established under the Richard B. Russell National School 
Lunch Act (42 U.S.C. 1760) and the Agriculture and Consumer Protection 
Act of 1973 (7 U.S.C. 612c note) for persons who embezzle, willfully 
misapply, steal, or obtain by fraud, donated foods, or funds deriving 
from donated foods. These sanctions are included in current Sec.  
250.13(i).
2. Definitions, Sec.  250.2
    In Sec.  250.2, we propose to include the definitions applicable to 
7 CFR part 250, which are included in current Sec.  250.3. Although 
most of the definitions are included without change, we have chosen to 
set out all definitions in this rule, in the interest of clarity. 
However, this preamble addresses only those current definitions that we 
are proposing to remove or revise and the definitions that we are 
proposing to add.
    We propose to remove the definitions of ``Commodities'', ``Disaster 
victims'', ``Discount system'', ``FNSRO'', ``Nonprofit school food 
service account'', ``Refund application'', ``Refund system'', 
``School'', ``Secretary'', ``State and United States'', ``Substituted 
food'', and ``Welfare agency''. The term ``commodities'' is no longer 
commonly used, as it has been replaced by ``donated foods'' or ``USDA 
Foods,'' both of which are included in Sec.  250.2 of this proposed 
rule. The Federal Emergency Management Agency (FEMA) now commonly 
refers to survivors of a disaster or emergency, rather than to disaster 
victims, and we propose to use the same reference in 7 CFR part 250. In 
this proposed rule, we refer simply to FNS actions or requirements, 
without specifying FNSRO (i.e., FNS Regional Offices) or FNS 
Headquarters. FNS guidance indicates which FNS office is responsible 
for specific procedures. The definitions of ``Discount system'', 
``Refund'', ``Refund application'', ``Refund system'', and 
``Substituted food'', are unnecessary, as their meaning is clear in 
current Subpart C of 7 CFR part 250, which includes requirements in the 
processing of donated foods. The definition of ``Nonprofit school food 
service account'' is included in 7 CFR part 210, and we propose to 
include references to that part, as appropriate, rather than repeat the 
definition in 7 CFR part 250. Similarly, the definition of ``School'' 
is included in Sec.  210.2, and we refer invariably to the school food 
authority, rather than to individual schools, in 7 CFR part 250. In 
this proposed rule, we refer to the Department or USDA, rather than to 
the Secretary. The term ``Welfare agency'' is no longer in use, and 
such agencies would fall under the term ``Recipient agencies'' in this 
proposed rule. The current definition of ``State and United States'' 
would be replaced by a new definition of ``State''.

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    We propose to revise current definitions of ``Adult care 
institution'', ``CACFP'', ``Charitable institutions'', ``Department'', 
``Disaster'', ``Disaster organizations'', ``Distributing agency'', 
``Donated foods'', ``Elderly nutrition project'', ``Household'', ``In-
kind replacement'', ``Multi-State processor'', ``National per-meal 
value'', ``Needy persons'', ``NSIP'', ``NSLP'', ``Recipient agencies'', 
``SBP'', ``Section 4(a)'', ``Section 6'', ``Section 14'', ``Section 
32'', ``Section 311'', ``Section 416'', ``Section 709'', ``SFSP'', 
``Similar replacement'', ``Situation of distress'', ``Storage 
facility'', ``State Agency on Aging'', and ``Subdistributing agency''.
    The proposed revisions of ``Adult care institution'', ``CACFP'', 
``Charitable institutions'', ``Department'', ``Donated foods'', 
``Elderly nutrition project'', ``Multi-State processor'', ``National 
per-meal value'', ``Needy persons'', ``NSIP'', ``NSLP'', ``SBP'', 
``Section 4(a)'', ``Section 6'', ``Section 14'', ``Section 32'', 
``Section 311'', ``Section 416'', ``Section 709'', ``SFSP'', ``State 
Agency on Aging'', and ``Storage facility'' would simply streamline the 
current definitions.
    The proposed revision of ``Disaster'' would also streamline the 
current definition, and would include the Presidential declaration of a 
disaster or emergency (e.g., a pandemic), as either event would trigger 
the provision of donated foods, in accordance with section 413 of the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act, as 
amended (42 U.S.C. 5180). The proposed revision of ``Situation of 
distress'' would simply indicate that it is a natural catastrophe or 
other event that does not meet the definition of disaster, but that, in 
the determination of the distributing agency or FNS, warrants the use 
of donated foods to assist persons in need of food assistance as a 
result of such catastrophe or event. Further explanation relating to 
contingencies for the provision of donated food assistance in such an 
event is included in Sec.  250.70 of this proposed rule. The proposed 
revision of ``Disaster organizations'' would include reference to such 
organizations authorized to provide assistance to survivors of a 
disaster or a situation of distress, rather than to disaster victims.
    The proposed revision of ``Distributing agency'' would clarify the 
current definition by indicating that it is a State agency selected by 
the appropriate authorities in the State to distribute donated foods in 
the State, in accordance with 7 CFR part 250 and other Federal 
regulations, as applicable. We also propose to clarify that Indian 
Tribal Organizations may act as distributing agencies in the 
administration of the Food Distribution Program on Indian Reservations 
(FDPIR) or other programs on, or near, Indian reservations, as 
currently provided for in Federal regulations. We propose to remove the 
inclusion of a Federal agency or private agency under the definition. A 
Federal agency may distribute donated foods in a State, but would not 
do so as a distributing agency subject to the requirements in this 
part. A private nonprofit agency may distribute donated foods in the 
State, but only as a subdistributing agency, under an agreement with 
the distributing agency. A private for-profit entity (i.e., commercial 
enterprise) may also distribute donated foods in the State, but only 
under contract with the distributing agency (or subdistributing 
agency), and subject to Federal procurement requirements. The proposed 
revision of ``Recipient agencies'' would clarify their function in 
providing assistance directly to needy persons. It would also clarify 
that local agencies in the Commodity Supplemental Food Program (CSFP), 
and Indian Tribal Organizations distributing donated foods to needy 
persons through FDPIR in a State in which the State government 
administers FDPIR, are considered recipient agencies in 7 CFR part 250.
    The proposed revision of ``Subdistributing agency'' would clarify 
that it is a State agency, public agency, or a nonprofit organization 
selected by the distributing agency to perform one or more donated food 
activities required of the distributing agency. It would remove the 
current designation of State agencies, local agencies, and Indian 
Tribal Organizations that administer TEFAP, FDPIR, or CSFP as 
subdistributing agencies. State agencies and Indian Tribal 
Organizations administering such programs meet the definition of 
distributing agency. Local agencies in CSFP may function as 
subdistributing agencies if they receive donated foods for further 
distribution to other recipient agencies. However, in most cases, they 
function only as recipient agencies in that they provide assistance 
directly to needy persons.
    The proposed revisions of ``In-kind replacement'' and ``Similar 
replacement'' would clarify that such replacement must be with the same 
(i.e., in-kind) or similar foods of a quality and value at least equal 
to the lost donated foods. The proposed revision of ``Similar 
replacement'' also clarifies that the replacement food must be from the 
same food category (e.g., meat, vegetable, grains) as the lost donated 
food. The proposed revision of ``Household'' clarifies the individuals 
or the groups of individuals which may be considered a household in 
this part.
    We propose to add definitions of ``7 CFR Part 3052'', 
``Administering agency'', ``Carrier'', ``Consignee'', ``CSFP'', 
``Distribution charge'', ``FDPIR'', ``Food recall'', ``Household 
programs'', ``In-State processor'', ``Multi-food shipment'', ``Out-of-
condition donated foods'', ``SAE funds'', ``Section 27'', ``SNAP'', 
``Split shipment'', ``State'', ``TEFAP'', ``USDA foods'', and 
``Vendor''.
    The addition of ``Administering agency'' would clarify its function 
in the overall administration of a food assistance program in the 
State, rather than just the distribution of donated foods, which is the 
function of the distributing agency. While the administering agency may 
also be the distributing agency in a State, that is not always the 
case. The addition of ``CSFP'', ``FDPIR'', ``Household programs'', 
``SNAP'', and ``TEFAP'' would help the reader identify food assistance 
programs referred to in 7 CFR part 250. The addition of ``7 CFR Part 
3052'' would alert the reader to the Departmental regulations relating 
to audits of public and nonprofit agencies receiving Federal grants. 
The additions of ``Carrier'' and ``Consignee'' would identify entities 
that transport donated foods from one location to another, and that 
receive shipments of donated foods, respectively. The addition of 
``Distribution charge'' would identify the total charge or fee that the 
distributing agency may impose on recipient agencies in child nutrition 
programs to help defray costs of storing and distributing donated 
foods, and associated administrative costs. The addition of ``Multi-
food shipment'' would identify shipments of donated foods from a 
Federal storage facility, rather than directly from a vendor.
    The addition of ``Food recall'' would identify an action necessary 
to protect public health, which is further addressed in Sec.  250.15(c) 
of this proposed rule. The addition of ``In-State processor'' would 
help the reader distinguish such an entity from a multi-State 
processor. The addition of ``Out-of-condition donated foods'' would 
identify those donated foods that are no longer fit for human 
consumption. The addition of ``SAE funds'' would identify the Federal 
funds provided to State agencies to pay for administrative expenses in 
NSLP and other child nutrition programs, in accordance with 7 CFR part 
235. The addition of ``Section 27'' would identify the section of the 
Food and Nutrition Act of 2008 that authorizes funds for food purchases

[[Page 63227]]

in TEFAP. The addition of ``Split shipment'' would identify a shipment 
of donated food that is divided among two or more distributing or 
recipient agencies. The addition of ``State'' would streamline the 
current definition of ``State and United States'', which we are 
proposing to remove. It would also exclude the Trust Territory of the 
Pacific Islands, which is no longer a recipient of donated foods. The 
addition of ``USDA Foods'' would alert the reader to another commonly-
used term for donated foods. The addition of ``Vendor'' would identify 
a commercial enterprise from which the Department purchases food for 
donation.
3. Administration at the Federal Level, Sec.  250.3
    In Sec.  250.3, we propose to include the actions that may be 
undertaken by FNS, as the Federal administering agency for USDA food 
assistance programs, in ensuring the effective distribution and control 
of donated foods. In Sec.  250.3(a), we propose to describe the role of 
FNS in administering USDA food assistance programs at the Federal 
level, including the distribution of donated foods to State 
distributing agencies for further distribution and use, in accordance 
with the requirements in this part.
    In Sec.  250.3(b), we propose to include the authority, in current 
Sec.  250.18(a), for the Department, Comptroller General, or any of 
their authorized representatives, to conduct audits or inspections of 
any agency, or contracted commercial entity, in order to determine 
compliance with the requirements of this part, or with other applicable 
Federal regulations.
    In Sec.  250.3(c), we propose to include FNS's authority, in 
current Sec.  250.20, to terminate the distribution of donated foods, 
or the provision of administrative funds, to a distributing agency for 
its failure to comply with the requirements of 7 CFR part 250, or with 
other applicable Federal regulations. However, we propose to clarify 
that FNS may also choose to suspend such activities, rather than 
terminate them, as provided for in 7 CFR 3016.43. We also propose to 
clarify that FNS must provide written notification to the distributing 
agency of such termination or suspension of assistance, and that such 
action is subject to an appeal if recourse to an appeal is provided for 
in Federal regulations applicable to specific programs (e.g., as 
provided for in FDPIR, in accordance with 7 CFR part 253) . Lastly, we 
include the stipulation that FNS may also take other actions, as 
appropriate, including prosecution under applicable Federal statutes.
4. Administration at the State Level, Sec.  250.4
    In Sec.  250.4, we propose to include the responsibility of the 
distributing agency in administering the distribution of donated foods 
at the State level. In Sec.  250.4(a), we propose to require the 
distributing agency to ensure compliance with requirements in 7 CFR 
part 250, and in other Federal regulations referenced in this part. We 
propose to include the requirement, in current Sec.  250.12(a), that 
the distributing agency enter into a written agreement with FNS (i.e., 
the Federal-State agreement) to receive, store, and distribute donated 
foods in the State. We propose to retain the current provision that 
makes the agreement permanent, but to permit it to be amended or 
terminated with the concurrence of both parties. We also indicate that 
FNS may terminate the Federal-State agreement for the distributing 
agency's failure to ensure compliance with requirements. Lastly, we 
propose to retain the provision, in current Sec.  250.2(b), that the 
distributing agency may impose additional requirements relating to the 
distribution and control of donated foods in the State, as long as such 
requirements are not inconsistent with the requirements of 7 CFR part 
250 or other Federal regulations referenced in this part. We propose to 
remove the provision, in current Sec.  250.2(c), that the distributing 
agency must provide adequate personnel to administer the program, as 
the need to comply with requirements for effective administration would 
necessitate the employment of adequate personnel to do so.
    In Sec.  250.4(b), we propose to include the option, in current 
Sec. Sec.  250.3 and 250.12(b), for the distributing agency to select a 
subdistributing agency (as defined in this proposed rule) to perform 
specific activities relating to donated foods for which the 
distributing agency is responsible, in accordance with a written 
agreement between the parties. We propose to retain the provision, in 
current Sec.  250.10(c), that prohibits the distributing agency from 
delegating its overall responsibility to ensure compliance with 
requirements in 7 CFR part 250 to a subdistributing agency or to any 
other organization. We also propose to prohibit the distributing agency 
from delegating its responsibility to ensure compliance with the 
performance standards included in Sec.  250.22 of this proposed rule.
    In Sec.  250.4(c), we propose to include the requirement, in 
current Sec. Sec.  250.11(b) and 250.13(d)(1), that the distributing 
agency select recipient agencies to receive donated foods for 
distribution to needy persons, or for inclusion in meals provided to 
needy persons. We propose to clarify that such selection must be in 
accordance with eligibility criteria applicable to specific programs or 
outlets. We also propose to retain the requirement, in current Sec.  
250.12(b), that the distributing agency enter into a written agreement 
with a recipient agency prior to distribution of donated foods to it. 
We propose to clarify that, for child nutrition programs, the 
distributing agency must enter into agreements with recipient agencies 
selected by the State administering agency (which may be different from 
the distributing agency) for participation in such programs, before 
distribution of donated foods to such recipient agencies. The 
distributing agency must verify such recipient agencies' participation 
in child nutrition programs with the State administering agency. We 
propose to include the requirement in current Sec.  250.11(b) that the 
distributing agency consider past performance in selecting recipient 
agencies to receive donated foods, but specify that this requirement 
only applies to household programs. We propose to remove the current 
provision that the distributing agency ensure that welfare agencies 
determine the eligibility of program participants. Requirements 
relating to the determination by recipient agencies of participant 
eligibility are included in regulations appropriate to specific 
programs or outlets.
    We also propose to include the required provisions of agreements 
with recipient agencies and subdistributing agencies in Sec.  250.4(c) 
of this proposed rule. We propose to retain the provision, in current 
Sec.  250.12(b)(1), that ensures compliance with the requirements of 7 
CFR part 250, and propose to also include assurance of compliance with 
other Federal regulations, as referenced in 7 CFR part 250 and with the 
distributing agency's written agreement with FNS. We propose to include 
a provision for compliance with all Federal, State or local 
requirements relating to food safety and food recalls. In Sec.  
250.15(c) of this proposed rule, we are proposing to require 
distributing and recipient agencies to follow all applicable Federal, 
State or local requirements for donated foods subject to a food recall. 
As discussed in Section I of this proposed rule, in 2002, the 
Department, in collaboration with State agencies and school food 
authorities, developed procedures and instructions for responding to 
donated foods subject to a food recall. These procedures and

[[Page 63228]]

instructions are provided to assist distributing and recipient agencies 
in ensuring that donated foods subject to a food recall are isolated, 
inspected, and recovered in an expeditious manner.
    In accordance with current Sec.  250.12(c), distributing agency 
agreements with recipient agencies are permanent, with amendments to be 
made as necessary. However, the distributing agency's agreement with a 
subdistributing agency is limited to one year, and may be extended for 
two additional one-year periods. We propose to require that the 
duration of agreements with recipient agencies and subdistributing 
agencies be included in provisions of such agreements, but propose to 
remove the current durational requirements in order to allow 
distributing agencies to determine the duration that will best meet the 
needs of the program. The distributing agency may choose to enter into 
permanent agreements with recipient agencies or subdistributing 
agencies, unless other regulations applicable to specific programs 
limit such duration. In accordance with current Sec.  250.12(c)(3), 
agreements may be terminated for cause by either party upon 30 days 
notice. We propose to revise this provision to permit termination of 
the agreement by the distributing agency for noncompliance with its 
provisions or with other applicable requirements, upon written 
notification to the applicable party, but without specifying a 
notification period. This will permit the distributing agency to take 
immediate action in the event that noncompliance on the part of a 
recipient agency or subdistributing agency would result in interruption 
of services to program participants or other serious program 
disruptions. We also propose to include a provision that permits 
termination of the agreement by either party, upon written notification 
to the other party at least 60 days prior to the effective date of 
termination. This change will allow distributing agencies the time 
needed to secure new contracts, alter distribution schedules, and move 
existing inventories, as necessary, without negatively impacting 
program operations.
    We propose to remove agreement provisions in current Sec.  
250.12(b) that specifically address the responsibility for donated food 
losses and claims against other parties. Responsibility of each party 
in such instance is provided for in 7 CFR part 250 and FNS instructions 
and guidance, and the agreement must provide for adherence to all such 
requirements. Lastly, we propose to remove the requirement, in current 
Sec.  250.11(a), that the distributing agency verify registration of 
recipient agencies to participate in the National Commodity Processing 
Program, as this program is no longer active.
    Recipients of Federal grants must ensure compliance with 
Departmental procurement requirements in 7 CFR parts 3016 or 3019, as 
applicable, in obtaining the services of a commercial enterprise to 
conduct activities under the grant. In Sec.  250.4(d), we propose to 
clarify that such procurement requirements are applicable to 
distributing and recipient agencies in obtaining such services. We also 
propose to indicate that such procurement must also ensure compliance 
with other applicable Departmental requirements--e.g., a school food 
authority must ensure compliance with requirements in 7 CFR part 210, 
and in Subpart D of 7 CFR part 250, in obtaining the services of a food 
service management company to manage the school food service.
5. Civil Rights, Sec.  250.5
    In Sec.  250.5, we propose to include civil rights requirements. In 
accordance with current Sec.  250.21, distributing, subdistributing, 
and recipient agencies must comply with the Department's regulations 
pertaining to nondiscrimination, as well as with FNS civil rights 
instructions. Such regulations and instructions ensure that no person 
is discriminated against in the receipt or distribution of donated 
foods. We propose to include such requirements in Sec.  250.5.

B. Subpart B--Delivery, Distribution, and Control of Donated Foods

    We propose to completely revise current Subpart B of 7 CFR part 250 
to more clearly present the specific requirements in the ordering and 
delivery of donated foods, the distribution of donated foods to 
recipient agencies, and the control of donated foods at the 
distributing and recipient agency levels. To this end, we propose to 
restructure this subpart into 13 new sections, and to change the 
heading to Delivery, Distribution, and Control of Donated Foods, with 
new sections as described in the following paragraphs.
1. Availability and Ordering of Donated Foods, Sec.  250.10
    In Sec.  250.10, we propose to include requirements to ensure that 
recipient agencies may order donated foods that are most useful to 
them, and that may be utilized efficiently and without waste. We also 
propose to assure that recipient agencies have the information 
necessary to order and utilize such foods effectively. FNS offers a 
wide variety of donated foods and continually updates the foods offered 
to ensure that distributing and recipient agencies are able to order 
the products which will best meet the needs of their programs. As new 
foods become available, and as needs of an individual program or 
recipient agency change, it is important that distributing agencies 
facilitate ordering and use of the foods which will be most 
advantageous to recipient agencies. In Sec.  250.10(a), we propose to 
require the distributing agency to utilize a request-driven ordering 
system in submitting orders for donated foods to FNS, which must 
provide recipient agencies the opportunity to provide input at least 
annually in determining the donated foods from the full list that are 
made available to them for ordering. We propose to require that the 
distributing agency use the input provided to ensure that the types and 
forms of donated foods that recipient agencies may best utilize are 
made available to them for ordering. FNS has developed guidance to 
assist distributing agencies in implementing a request-driven ordering 
system that meets the requirements of this section. Lastly, we propose 
to include the requirement, in current Sec.  250.13(a), that the 
distributing agency ensure donated foods are ordered and distributed in 
quantities that may be utilized efficiently and without waste. However, 
we propose to remove the specific stipulation, in current Sec.  
250.13(d)(2), that Section 416 bonus foods may not be distributed to 
recipient agencies if normal food expenditures would be reduced. The 
provision of donated foods is meant, in part, to assist recipient 
agencies in meeting their food assistance needs in a cost-effective 
manner.
    In Sec.  250.10(b), we propose to require the distributing agency 
to ensure that recipient agencies have information on the types and 
quantities of donated foods that may be ordered, donated food 
specifications and nutritional value, and procedures for the 
disposition of donated foods that are out-of-condition or that are 
subject to a food recall.
2. Delivery and Receipt of Donated Food Shipments, Sec.  250.11
    In Sec.  250.11, we propose to include requirements for the receipt 
of donated food shipments from USDA vendors or from a Federal storage 
facility, and the conditions for the replacement of donated foods that 
have been delivered unsafe or out-of-condition by such entities. In 
Sec.  250.11(a), we propose to indicate that the Department arranges 
for the delivery of donated foods from

[[Page 63229]]

vendors or Federal storage facilities to distributing or recipient 
agencies or other entities designated by such agencies (i.e., the 
consignee). However, we propose to remove the provision, in current 
Sec.  250.13(a), that refers to the Department's responsibility to 
conform to scheduled delivery periods. While the Department strives to 
ensure timely deliveries to distributing and recipient agencies, such 
deliveries are subject to vendor and storage facility contracts and 
performance.
    In Sec.  250.11(b), we propose to require that the distributing or 
recipient agency, or other consignee, comply with all applicable 
Federal requirements in the receipt of donated food shipments. 
Procedures are contained in FNS Instruction 709-5, Shipment and Receipt 
of Donated Foods, which include those for donated foods that have been 
delivered out-of-condition. We also propose to require that the 
distributing or recipient agency, or other consignee, provide 
notification of receipt of donated food shipments to FNS through 
electronic means, and retain an electronic record of receipt of all 
donated food shipments. Implementation of an electronic donated foods 
ordering system has allowed distributing or recipient agencies to 
notify FNS of receipt of donated foods more efficiently than through 
previous ordering systems, resulting in faster payment for vendors, and 
more efficient tracking of donated foods, which is important in the 
event of food recalls or product complaint investigations.
    In Sec.  250.11(c), we propose to include requirements for the 
replacement of donated foods that are delivered out-of-condition by the 
vendor. In accordance with current Sec.  250.13(g), the Department 
arranges for vendor replacement of donated foods that are delivered 
out-of-condition. Vendor responsibility for replacement of such foods 
may extend up to six months after their delivery, if there is 
documentation indicating that the foods were out-of-condition at the 
time of delivery. We propose to retain the current requirement for 
vendor replacement of donated foods that are delivered out-of-
condition. However, we propose to require that vendor responsibility 
for such replacement extend up until the time of expiration of the 
product use-by or best-if-used-by date or, if no such date is included 
on the product label, until expiration of the vendor warranty period. 
The warranty period is the minimum acceptable shelf life established in 
the USDA contract with the vendor. In all cases, responsibility for 
such replacement is contingent on determination that the foods were 
out-of-condition at the time of delivery. The proposed time periods 
would be more practical than the current ones, as they bear a closer 
relationship to the actual shelf life of the foods.
    In accordance with current Sec.  250.13(g)(3), the vendor must 
provide for in-kind replacement of donated foods, unless FNS approves 
replacement with another type of food in the same food category (i.e., 
similar replacement). We propose to retain this requirement, and to 
indicate that the terms in-kind and similar replacement are defined in 
Sec.  250.2 of this proposed rule. In accordance with current Sec.  
250.13(g), if physical replacement of donated foods would not be cost-
effective or efficient, FNS may approve payment by the vendor to the 
distributing or recipient agency, or may credit the distributing 
agency's entitlement or assistance level. We propose to retain these 
options in Sec.  250.11(c).
    In Sec.  250.11(d), we propose to include the information, in 
current Sec.  250.13(b), that the Department is responsible for payment 
of the cost of delivering donated foods from vendors or Federal storage 
facilities to consignees, as well as any processing or handling costs 
incurred up to the time of delivery, as is deemed in the best interest 
of the Department. In accordance with current Sec.  250.15(d), the 
distributing agency is responsible for payment of any charges accruing 
as a result of a delay in unloading a donated food shipment after 
arrival at the designated location, unless the Department is 
responsible for such delay. We propose to retain such obligation, but 
to clarify that the distributing agency, recipient agency, or other 
consignee, as appropriate, is responsible for the payment of any 
delivery charges that accrue as a result of such consignee's failure to 
comply with procedures in FNS instructions. We propose to include the 
failure to provide for the unloading of a shipment of donated foods 
within a designated time period as an example of such noncompliance.
    In Sec.  250.11(e), we propose to include the provisions, in 
current Sec.  250.13(c), relating to transfer of title to donated 
foods. However, we propose to clarify that title transfers to the 
distributing or recipient agency, as appropriate (i.e., whichever 
agency receives the donated food shipment). We also propose to clarify 
that, notwithstanding transfer of title, distributing and recipient 
agencies must ensure compliance with the requirements of 7 CFR part 250 
in the control and use of donated foods.
3. Storage and Inventory Management at the Distributing Agency Level, 
Sec.  250.12
    In Sec.  250.12, we propose to describe the requirements for the 
storage and management of donated food inventories at storage 
facilities used by the distributing agency or subdistributing agency, 
which may include commercial storage facilities under contract with 
either the distributing or the subdistributing agency. In Sec.  
250.12(a), we propose to essentially retain the requirements in current 
Sec.  250.14(b), which require that distributing agency facilities for 
the storage and control of donated foods protect against theft, 
spoilage, damage, or other loss, and obtain the required Federal, 
State, or local health inspections. However, we propose to revise this 
latter provision to require that the distributing agency ensure that 
storage facilities comply with all Federal, State, or local 
requirements relating to food safety and health, as applicable, and 
obtain all required health inspections.
    In Sec.  250.12(b), we propose to include the requirement, in 
current Sec.  250.14(b), that the distributing agency ensure that 
donated foods at any storage facility used by the distributing or 
subdistributing agency are stored in a manner that permits them to be 
distinguished from other foods, and must ensure that a separate 
inventory record of such donated foods is maintained. Such requirements 
ensure distribution of donated foods to the appropriate recipient 
agencies. We also propose to require that the distributing agency's 
system of inventory management ensure that donated foods are 
distributed in a timely manner and in optimal condition. FNS offers 
guidance that includes further direction on effective inventory 
management practices and the need to consider product dates in 
distribution of donated foods. We propose to retain the requirement, in 
current Sec.  250.14(e), that the distributing agency conduct a 
physical review of such donated food inventories, and reconcile 
physical and book inventories, on an annual basis. We propose to 
include the requirement in current Sec.  250.15(c) that the 
distributing agency report donated food losses to FNS, and ensure 
restitution for such losses. FNS provides guidance for complying with 
these requirements in FNS Instruction 410-1, Claims for Losses of 
Donated Foods and Related Administrative Losses--Procedures for the 
State Distributing Agency, and in FNS Instruction 420-1, Managing 
Agency Debts.

[[Page 63230]]

    In Sec.  250.12(c), we propose to include the limitations on the 
amount of donated food inventories on-hand. In accordance with current 
Sec.  250.14(f)(2), donated food inventories at the distributing agency 
level may not exceed a six-month supply, unless justification is 
submitted, and FNS approval obtained, to maintain larger inventories. 
The inventory amount must be based on the amount of food that the 
distributing agency can reasonably utilize for the six-month period. We 
propose to retain the current inventory limitation for donated foods 
received in NSLP or other child nutrition programs, and in TEFAP. 
However, for donated foods received in CSFP or FDPIR, which offer 
defined food packages, we propose to limit inventory on-hand for each 
food category to an amount needed for a three-month period. The more 
restrictive inventory amounts would allow for more efficient use of 
limited program resources, and permit FNS to provide, to the greatest 
extent practical within available resources, a full variety of foods 
needed to meet monthly food package benefit levels in CSFP and FDPIR. 
In addition, implementation of more frequent deliveries in recent years 
has allowed distributing agencies in CSFP and FDPIR to more effectively 
manage donated food inventories. We propose to retain the option for 
the distributing agency to request FNS approval to maintain donated 
food inventories in excess of the established limits.
    In Sec.  250.12(d), we propose to require that the distributing 
agency obtain insurance to protect the value of donated food 
inventories at its storage facilities. Many distributing agencies 
currently have such protection, which better ensures that restitution 
can be made for donated food losses, in the event of a disaster or 
management error, and that recipients continue to receive program 
benefits. We also propose to require the distributing agency to ensure 
that subdistributing agencies, and recipient agencies in household 
programs that have agreements with the distributing agency or 
subdistributing agency, obtain such insurance for donated foods at 
their storage facilities. Lastly, we propose to require the 
distributing agency to ensure that commercial storage facilities under 
contract with the distributing agency, the subdistributing agency, or 
with the recipient agencies cited above, obtain insurance to protect 
the value of donated food inventories. We propose to require that, in 
all cases, the amount of the required insurance be at least equal to 
the average monthly value of donated food inventories at such 
facilities in the previous fiscal year. These minimum insurance 
requirements will help ensure that distributing agencies and recipient 
agencies receive the full benefit of the donated foods entitled to them 
in the event that donated foods are lost or damaged. The above entities 
are those that are most likely to have large inventories of donated 
foods, as well as the means to obtain protection for such foods. 
Smaller recipient agencies that do not have direct agreements with a 
distributing or subdistributing agency, but provide food packages 
directly to recipients, such as food pantries or community action 
agencies, would not be required to obtain insurance.
    In Sec.  250.12(e), we propose to include requirements for the 
transfer of donated foods from the distributing agency to another 
distributing agency or to another program. In accordance with current 
Sec.  250.13(h), the distributing agency must request FNS approval to 
``redonate'' donated foods that it cannot efficiently utilize. 
Additionally, current Sec.  250.13(a)(1) includes requirements for the 
``transfer'' of donated foods from one recipient agency to another. In 
practice, the terms ``redonation'' and ``transfer'' are often used 
interchangeably. To clarify, we propose to use the term ``transfer'' to 
refer to any redistribution of donated foods from one agency to 
another, or from one program to another, at the distributing or 
recipient agency level, and to cease using the term ``redonation''. We 
propose to clarify that the distributing agency may transfer donated 
foods from its inventories to another distributing agency or to another 
program, in order to ensure that such foods may be utilized in a timely 
manner and while in optimal condition. We propose to permit the 
distributing agency to transfer donated foods to another agency within 
the same program without FNS approval. However, we propose to require 
that the distributing agency request FNS approval to transfer donated 
foods from one program to another--e.g., from NSLP to TEFAP--whether 
the transfer is in the same or a different State, as these foods would 
be used in a program other than the program for which they were 
originally intended. We propose to stipulate that FNS may also require 
a distributing agency to transfer donated foods at the distributing 
agency's storage facilities or at a processor's facility, if 
inventories of donated foods are excessive or may not be efficiently 
utilized, so that such foods may be used to the benefit of recipients 
receiving donated foods through another agency or program.
    We propose to require the distributing agency to obtain an 
inspection of donated foods by State or local health officials before 
transferring them, if there is a question of food safety, or at the 
direction of FNS, to ensure that only foods that are still safe and not 
out-of-condition are transferred. We also propose to retain the 
requirement in current Sec.  250.15(e) that the distributing agency is 
responsible for meeting any transportation or inspection costs in 
transferring donated foods, unless the transfer is clearly not the 
result of negligence or improper action of the distributing agency. 
Lastly, we propose to require that the distributing agency maintain a 
record of all transfers and inspections of donated foods from its 
inventories. Transfer of donated foods at the recipient agency level is 
discussed in section II.B.5, Storage and Inventory Management at the 
Recipient Agency Level, Sec.  250.14, of this preamble.
    In Sec.  250.12(f), we propose to indicate that the distributing 
agency may obtain the services of a commercial storage facility to 
store and distribute donated foods, or a carrier to transport such 
foods, but must ensure compliance with Departmental procurement 
requirements in 7 CFR part 3016. We propose to retain the requirement, 
in current Sec.  250.14(d), that the distributing agency also enter 
into a written contract with such commercial storage facility, and that 
such contract not exceed five years in duration, including option years 
for extension or renewal. Because carriers assume similar 
responsibility for donated foods under their control, we propose to 
include the same requirements in contracting with a carrier. We also 
propose to retain the required contract provisions in current Sec.  
250.14(d) relating to safe and secure storage conditions, inventory 
management, insurance, reviews, contract duration and extension, and 
termination for noncompliance. We propose to add provisions to assure 
compliance with Federal, State or local requirements relative to food 
safety and health. We also propose to add a provision to assure that 
donated foods will be distributed to eligible recipient agencies in a 
timely manner and in optimal condition, and in amounts for which such 
recipient agencies are eligible. Lastly, we propose to revise the 
current provision providing for termination of the contract by either 
party (except as a result of noncompliance with regulatory provisions) 
by requiring notification of such termination at least 60 days in 
advance, rather than the current 30 days. This change will allow

[[Page 63231]]

distributing agencies the time needed to secure new contracts, alter 
distribution schedules, and move existing inventories, as necessary, 
without negatively impacting program operations. We propose to require 
the same provisions in a contract with a carrier, as such provisions 
are necessary to ensure the safe and effective transport of foods from 
one location to another.
4. Efficient and Cost-Effective Distribution of Donated Foods, Sec.  
250.13
    In Sec.  250.13, we propose to include requirements to ensure the 
distribution of donated foods to recipient agencies in the most 
efficient and cost-effective manner. In Sec.  250.13(a), we propose to 
retain the requirements, in current Sec. Sec.  250.14(a) and 250.24(e), 
that the distributing agency distribute donated foods to recipient 
agencies in the most efficient and cost-effective manner, and that such 
distribution is responsive to the needs of recipient agencies, as 
feasible. In meeting this requirement, we propose to require the 
distributing agency, to the extent practical, to provide for shipment 
of donated foods directly from the USDA vendor to the recipient agency, 
or (at the recipient agency's request) directly to a processor for 
processing into end products. We also propose to require that the 
distributing agency provide for split shipments between two or more 
recipient agencies, if such agencies are unable to accept a full 
truckload. Split shipments allow recipient agencies, particularly small 
recipient agencies, to receive donated foods in the forms and 
quantities that are most useful to them and on a schedule that will 
permit them to store and distribute the foods in the most efficient and 
cost-effective manner possible.
    In Sec.  250.13(b), we propose to require that, if the distributing 
agency determines that direct shipments are impractical (even after 
taking into account split shipments), it must provide for storage of 
donated foods at the distributing agency level, and subsequent 
distribution to recipient agencies. Such storage and distribution must 
be provided in the most efficient and cost-effective manner possible in 
order to minimize the cost to the recipient agency of receiving donated 
foods. We propose to clarify that the distributing agency must use 
State Administrative Expense (SAE) funds, as available, to meet costs 
of storing and distributing donated foods, or related administrative 
costs, for school food authorities or other recipient agencies in child 
nutrition programs, or must use other Federal or State administrative 
funds received for such purpose. SAE funds are provided to State 
agencies administering NSLP or other child nutrition programs, in 
accordance with 7 CFR part 235, and distributing agencies receive SAE 
funds specifically to cover the costs of storing and distributing 
donated foods and related administrative costs for such programs. 
However, as SAE funds, or State funds, are limited, distributing 
agencies may also assess fees on school food authorities to help defray 
such costs. Under 7 CFR part 250, such fees are included under the term 
``Distribution charge''.
    We propose to retain the provision, in current Sec.  250.15(a)(1), 
that permits the distributing agency to impose a distribution charge on 
school food authorities, but with the clarification that such charge 
may be imposed only if SAE funds, or other funds available from State 
or local sources, are insufficient to fully meet the costs of storing 
donated foods and distributing them to such agencies, and of 
administrative costs relating to such activities. We also propose to 
clarify that the distribution charge may cover only allowable costs, in 
accordance with 7 CFR part 3016 and with OMB guidance. The Departmental 
and OMB guidance provide for allowable costs for Federal grant 
expenditures. Lastly, we propose to require that the distributing 
agency maintain a record of costs incurred in storing and distributing 
donated foods and related administrative costs, and the source of funds 
used to pay such costs.
    We propose to retain the requirement in current Sec.  250.14 that 
the distributing agency use a commercial storage facility to store and 
distribute donated foods, in accordance with requirements in Sec.  
250.12(f) of this proposed rule, if a commercial system is determined 
to be the most efficient and cost-effective. However, we propose to 
remove the requirement, in current Sec.  250.14(a)(2), that a 
distributing agency utilizing a noncommercial system of storage and 
distribution evaluate such system by comparing its costs with the cost 
of obtaining a commercial system, at 3-year intervals, and submit such 
cost evaluation to FNS. State distributing agencies performed such an 
evaluation and cost comparison, as directed in the Commodity 
Distribution Reform Act and, as a result, either changed to a 
commercially contracted distribution system, or determined that other 
storage and distribution options were more cost-effective. Subsequent 
periodic evaluations have been required, however, only through the 
regulations. We have determined that the use of such evaluations is no 
longer necessary for Program integrity. Consequently, we also propose 
to remove the requirement, in current Sec.  250.14(a)(5), that the 
distributing agency request a waiver to continue using a noncommercial 
system.
    In Sec.  250.13(c), we propose to retain the requirement, in 
current Sec.  250.14(a)(7), that the distributing agency obtain FNS 
approval to increase the distribution charge beyond normal inflationary 
adjustments or to change the level of service provided under a 
distribution charge. We also propose to require FNS approval of the 
amount of a newly established distribution charge (some States do not 
currently impose a distribution charge on school food authorities). We 
propose to clarify that such requirement also applies to any charge 
imposed on school food authorities by a distributing agency's 
commercially contracted storage facility. We propose to retain the 
current requirement that such request be submitted for approval at 
least 90 days in advance of its projected implementation. We also 
propose to retain the requirement, in current Sec.  250.15(a)(1), that 
the request include justification for the new or increased amount, and 
the specific costs to be covered by the distribution charge. However, 
we propose to add a requirement that the request include justification 
for any change in the level of service provided under an existing 
distribution charge. Distributing agencies may use SAE funds to meet 
the costs of storing and distributing donated foods, and other Federal 
or State funds may also be available for this purpose. The use of such 
funds should allow distributing agencies to provide for storage and 
distribution costs of donated foods with minimal, if any, charge to 
recipient agencies. Therefore, any new or increased charge, or change 
in the level of services associated with a charge, must be necessary to 
provide recipient agencies with donated foods in the most efficient and 
cost-effective manner possible, as determined by FNS.
    In Sec.  250.13(d), we propose to indicate that FNS may disapprove 
the distributing agency's proposed new distribution charge or changes 
to an existing distribution charge, if FNS determines that such amount 
would not provide for the most cost-effective distribution of donated 
foods, or would otherwise impact recipient agencies negatively. We 
propose to clarify that, in such case, the distributing agency would be 
required to adjust the distribution charge or the level of service 
provided under the distribution charge, or to consider other storage 
and distribution options. We also propose to

[[Page 63232]]

retain the provision, in current Sec.  250.14(a)(6)(ii), that FNS may, 
at any time, require the distributing agency to submit documentation to 
justify the cost-effectiveness of its distribution system, and to re-
evaluate such system, if it is determined to be out of compliance with 
the requirements in this section, as proposed. We propose to remove the 
requirement, in current Sec.  250.15(a), that the distributing agency 
submit to FNS a description of its system for assessing its 
distribution charge every three years. However, FNS may require the 
distributing agency to submit information relating to its assessment of 
the distribution charge, or to any other aspect of its distribution 
system, in accordance with Sec.  250.18(d) of this proposed rule.
5. Storage and Inventory Management at the Recipient Agency Level, 
Sec.  250.14
    In Sec.  250.14, we propose to include requirements for the storage 
and management of donated foods at the recipient agency level, 
including commercial storage facilities or other entities under 
contract with the recipient agency. In Sec.  250.14(a), we propose to 
require recipient agencies to meet the same requirements for food 
safety and health at their storage facilities as those proposed for the 
distributing agency in Sec.  250.12(a) of this rule.
    In Sec.  250.14(b), we propose to require that recipient agencies 
in household programs store donated foods in a manner that permits them 
to be distinguished from other foods at their storage facilities, and 
to maintain a separate inventory record of donated foods. Recipient 
agencies in household programs are currently subject to the requirement 
to maintain storage and inventories of donated foods separately from 
other foods in accordance with their designation as ``subdistributing 
agencies'', in current Sec.  250.3. However, as described in section 
II.A.2 of the preamble, we are proposing to remove the current 
designation of such recipient agencies as subdistributing agencies. We 
also propose to require that such recipient agencies' system of 
inventory management ensure that donated foods are distributed to 
recipients in a timely manner that permits use of such foods while 
still in optimal condition. Lastly, we propose to clarify that 
recipient agencies in household programs must notify the distributing 
agency of any donated food losses, and take further actions with 
respect to such donated foods, as directed by the distributing agency.
    In Sec.  250.14(c), we propose to clarify the requirement in 
current Sec.  250.59(c) that recipient agencies in child nutrition 
programs, and those receiving donated foods as charitable institutions 
(in accordance with current Sec.  250.67), are not required to store 
donated foods in a manner that distinguishes them from purchased foods 
or other foods, or to maintain a separate inventory record of donated 
foods. Such recipient agencies may utilize single inventory management, 
in which donated foods are commingled with purchased foods or other 
foods in storage, and a single inventory record is maintained. Under 
single inventory management, all foods are subject to the same 
safeguards regarding food safety and health. As a result, we propose to 
clarify that all recipient agencies in child nutrition programs, and 
those receiving donated foods as charitable institutions, are not 
required to separately monitor and report donated food use, 
distribution, or loss to the distributing agency, unless there is 
evidence indicating that donated food loss has occurred as a result of 
theft or fraud. This is true regardless of the inventory management 
system actually utilized by such recipient agencies.
    In Sec.  250.14(d), we propose to include requirements in current 
Sec.  250.13(a)(1)(iii) for the transfer of donated foods from one 
recipient agency to another recipient agency and to clarify the types 
of transfers to which these requirements apply. We propose to clarify 
that a recipient agency operating a household program request approval 
from the distributing agency to transfer donated foods to another 
recipient agency in the same program. We propose to clarify that 
transfer of donated foods from such recipient agency to a recipient 
agency in another program receive FNS approval (i.e., through the 
distributing agency). We propose to indicate that a recipient agency 
operating a child nutrition program, or one receiving donated foods as 
a charitable institution (in accordance with current Sec.  250.67), may 
transfer donated foods to another recipient agency or charitable 
organization without prior approval from the distributing agency or 
FNS. This is in accordance with single inventory management, in which 
donated foods are commingled with other foods, and often may not be 
distinguished from them.
    In Sec.  250.14(e), we propose to indicate that recipient agencies 
may obtain the services of a commercial storage facility to store and 
distribute donated foods, but must ensure compliance with Departmental 
procurement requirements in 7 CFR parts 3016 or 3019, as applicable. We 
also propose to clarify that recipient agencies must ensure that such 
commercial storage facilities comply with the applicable requirements 
in 7 CFR part 250 for the storage and inventory management of donated 
foods.
6. Out-of-Condition Donated Foods, Food Recalls, and Complaints, Sec.  
250.15
    In Sec.  250.15, we propose to include requirements for the 
disposition of donated foods that are out-of-condition, or that are 
subject to a food recall, and requirements for the resolution of 
recipient complaints relating to donated foods. In Sec.  250.15(a), we 
propose to require the distributing agency to ensure that out-of-
condition donated foods at its storage facilities are destroyed, or 
otherwise disposed of, in accordance with State or local requirements 
pertaining to food safety and health. We propose to retain the 
contingency for sale of out-of-condition donated foods (e.g., to a 
salvage company) in accordance with current Sec.  250.13(f), if such 
sale is permitted by State laws or regulations, rather than contingent 
on FNS approval. We also propose to require the distributing agency to 
obtain an inspection of donated foods by State or local health 
authorities to determine their safety and condition, as necessary, or 
as directed by FNS.
    In Sec.  250.15(b), we propose to require that recipient agencies 
in household programs report out-of-condition donated foods at their 
storage facilities to the distributing agency, and ensure that such 
donated foods are destroyed, or otherwise disposed of, in accordance 
with State or local requirements pertaining to food safety and health. 
We propose to require the distributing agency to ensure that such 
recipient agencies obtain an inspection of donated foods by State or 
local health authorities to determine their safety and condition, as 
necessary, or as directed by FNS. We propose to indicate that, for 
recipient agencies in child nutrition programs, and those receiving 
donated foods as charitable institutions (in accordance with Sec.  
250.67), donated foods must be treated as other foods when safety is in 
question. Consequently, such recipient agencies must comply with State 
or local requirements in determining the safety of donated foods and 
other foods, and in their destruction or other disposition, but are not 
required to report such actions to the distributing agency.
    In Sec.  250.15(c), we propose to require that the distributing 
agency or recipient agency, as appropriate, follow all applicable 
Federal, State or local requirements for donated foods subject to a 
food recall. Departmental guidance

[[Page 63233]]

is also provided to assist distributing and recipient agencies in 
ensuring that donated foods subject to a food recall are isolated, 
inspected, and recovered in an expeditious manner, and that the 
appropriate parties are reimbursed for costs associated with such 
actions.
    In Sec.  250.15(d), we propose to indicate that the distributing 
agency must inform recipient agencies of the preferred method for 
receiving donated food complaints and resolve complaints received from 
recipients, recipient agencies, or other entities relating to donated 
foods in an expeditious manner, and in accordance with applicable 
requirements in 7 CFR part 250. We propose to require the distributing 
agency to submit any complaints regarding product quality or 
specifications, or suggested products improvements, to FNS through the 
established FNS donated foods complaint system for tracking and 
evaluation purposes. If resolution of the complaint at the State level 
is not feasible, we propose to indicate that the distributing agency 
must provide information regarding the complaint to FNS for resolution. 
Guidance on meeting these requirements is included on the FNS Web site. 
We also propose to prohibit the distributing agency from disposing of 
any donated food that is the subject of a complaint prior to guidance 
and authorization from FNS. Lastly, we propose to include the 
requirement, in current Sec.  250.22, that the distributing agency 
maintain a record of its investigations and other actions with respect 
to any complaints relating to donated foods. Resolving and tracking 
product complaints, either at the Federal or State level, is critical 
to ensuring that recipient agencies are receiving replacement products, 
as appropriate, and that donated foods meet the standards established 
by the Department.
7. Claims and Restitution for Donated Food Losses, Sec.  250.16
    In Sec.  250.16, we propose to include requirements to ensure that 
restitution is made for donated food losses, including claims against 
parties responsible for such losses. In Sec.  250.16(a), we propose to 
require that the distributing agency ensure that restitution is made 
for donated food losses, and for the loss or improper use of funds 
provided for, or obtained incidental to donated food distribution 
(e.g., in salvage of donated foods or sale of pallets). We propose to 
clarify that, in making restitution for losses, the distributing agency 
must identify, and seek restitution from, parties responsible for the 
loss, and implement corrective actions to prevent future losses. 
Guidance for distributing agencies is included in FNS Instruction 410-
1, Claims for Losses of Donated Foods and Related Administrative 
Losses--Procedures for the State Distributing Agency.
    We propose to remove the actions required of the distributing 
agency in making restitution for donated food losses in current Sec.  
250.15(c). We also propose to remove the provision, in current Sec.  
250.15(c)(2), that inventory loss of a donated food that does not 
exceed one percent of the total inventory of that food may, under 
certain conditions, be exempt from recovery through claims. Although 
some losses that meet such conditions may be exempted with FNS 
approval, as indicated above, a blanket exemption for inventory loss 
does not encourage efficient inventory management. Current provisions 
in Sec.  250.15(c)(2) also exempt losses in amounts that do not exceed 
thresholds established in State laws or regulations. We propose to 
remove this exemption as well, as all distributing agencies should be 
held to the same standards with respect to accountability for Federal 
resources provided.
    In Sec.  250.16(b), we propose to clarify that FNS may initiate and 
pursue a claim against the distributing agency or other entities for 
the loss of donated foods, and for the loss or improper use of funds 
provided, or obtained incidental to donated food distribution. We also 
propose to clarify that FNS may initiate and pursue a claim if the 
distributing agency fails to take required claim actions against other 
parties. These requirements incorporate requirements in current Sec.  
250.15(c). FNS guidance on taking action on a claim is included in FNS 
Instruction 420-1, Managing Agency Debts. Lastly, we propose to clarify 
that FNS may, on behalf of the Department, compromise, forgive, 
suspend, or waive a claim. Such actions would also be taken in 
accordance with FNS Instruction 420-1.
8. Use of Funds Obtained Incidental to Donated Food Distribution, Sec.  
250.17
    In Sec.  250.17, we propose to include requirements for the use of 
funds obtained incidental to donated food distribution--e.g., through 
the distribution charge, the salvage of out-of-condition donated foods, 
the sale of pallets used for donated foods, or rebates from processors 
for the value of donated foods processed into end products. In Sec.  
250.17(a), we propose to clarify requirements in current Sec.  
250.15(f)(2) relating to the use of funds obtained from the 
distribution charge imposed on recipient agencies in child nutrition 
programs, in accordance with Sec.  250.13(b) of this proposed rule. We 
propose to require that such funds be used to meet costs of storing and 
distributing donated foods or related administrative costs, consistent 
with limitations on the use of Federal grant funds in 7 CFR part 3016, 
and with OMB guidance. We also propose to specifically prohibit the use 
of such funds to purchase foods to replace donated food losses or to 
pay claims resulting from donated food losses.
    We also propose to include in Sec.  250.17(a) the requirement, in 
current Sec.  250.15(f)(3), that the distributing agency maintain funds 
obtained from the distribution charge in an operating account, separate 
from other funds, as well as the current limitation on the amount of 
funds that may be maintained in such account. We also propose to retain 
the current requirement that, unless FNS approval is requested and 
granted, funds in excess of this amount must be used to reduce the 
distribution charge imposed on recipient agencies, or to provide 
appropriate reimbursement to such agencies. However, we propose to 
remove the contingency in current Sec.  250.15(f)(2) that such funds be 
returned to the Department.
    In Sec.  250.17(b), we propose to require that school food 
authorities use funds obtained from processors in the processing of 
donated foods into end products (e.g., through rebates for the value of 
such processed donated foods, in accordance with Subpart C of 7 CFR 
part 250), or from food service management companies in crediting for 
the value of donated foods (in accordance with Subpart D of 7 CFR part 
250), in support of the nonprofit school food service. This aligns 7 
CFR part 250 with Sec.  210.14 which provides that school food 
authorities must use revenues received in the operation of the 
nonprofit school food service, as defined in Sec.  210.2 and in Sec.  
250.2 of this proposed rule, only for that food service. We propose to 
require that other recipient agencies use such funds to meet the costs 
of storing and distributing donated foods or related administrative 
costs, as proposed in Sec.  250.17(c) of this rule.
    In Sec.  250.17(c), we propose to clarify requirements in current 
Sec. Sec.  250.15(f)(1) and (f)(2) relating to funds collected in 
claims for donated food losses, and funds obtained from other sources 
incidental to donated food distribution. Donated foods are made 
available to distributing agencies to support the participants of each 
respective program. Any loss of donated foods means fewer foods will be 
available through the

[[Page 63234]]

affected program unless replacement foods are purchased. Therefore, we 
propose to require that funds collected in payment of claims for 
donated food losses be used to purchase replacement foods for use in 
the program in which the losses occurred unless the distributing 
agencies receives FNS approval to use the funds for other program 
purposes. Guidance for use of funds collected in payment of a claim are 
included in FNS Instruction 410-1, Claims for Losses of Donated Foods 
and Related Administrative Losses--Procedures for the State 
Distributing Agency, and in FNS Instruction 420-1, Managing Agency 
Debts. We propose to require that funds obtained from other sources, 
except as otherwise indicated in this section, be used to pay 
administrative costs of storing and distributing donated foods, 
consistent with the limitations on the use of funds provided under a 
Federal grant in 7 CFR parts 3016 or 3019, as applicable, and OMB 
guidance, as applicable. Using such funds in this manner will permit 
distributing agencies to reduce or eliminate the charges imposed on 
recipient agencies for storage, distribution and administration related 
to donated foods. Sources of such funds may include, for example, the 
sale of donated food containers or pallets, the salvage of out-of-
condition donated foods, or payments by processors for failure to meet 
processing yields. The Departmental and OMB regulations provide 
guidance for allowable costs in Federal grant expenditures for State 
and local government entities, and for private nonprofit organizations. 
We propose to remove the contingency, in current Sec.  250.15(f)(2), 
that such funds be returned to the Department.
    We propose to retain the requirement, in current Sec.  
250.15(f)(3), that the distributing agency maintain funds obtained from 
claims or other sources indicated in this section in a separate salvage 
account. However, we propose to rename this account the ``donated food 
account.'' We also propose to revise upward the threshold for which 
deposits into, and expenditures from, such account must receive FNS 
approval. We propose to require that the distributing agency receive 
FNS approval for a deposit into, or expenditure from, the donated food 
account in excess of $25,000, instead of the $2,500 threshold in 
current Sec.  250.15(f)(4). Regardless, such funds must be used in 
accordance with the requirements in proposed 250.17(c). Lastly, we 
propose to require that the distributing or recipient agency maintain a 
record of all funds obtained and expended in accordance with this 
proposed Sec.  250.17(c).
    In Sec.  250.17(d), we propose to clarify that the distributing 
agency is prohibited from using funds obtained incidental to donated 
food distribution to meet State matching requirements for other Federal 
grants received--e.g., for FDPIR or TEFAP. We also propose to clarify 
that such funds may not be used in place of State Administrative 
Expense (SAE) funds available to meet costs relating to storage and 
distribution of donated foods.
    In Sec.  250.17(e), we propose to clarify the ``Buy American'' 
requirement, in current Sec.  250.23, for the purchase of foods with 
funds obtained incidental to donated food distribution. In accordance 
with the current requirement, recipient agencies must use Federal funds 
to purchase only foods that are produced, or processed, in the United 
States, with certain exceptions. We propose to clarify that, when funds 
obtained in accordance with this section, as proposed, are used to 
purchase foods in the commercial market, a distributing or recipient 
agency in the continental United States, and in Hawaii, must, to the 
maximum extent practical, purchase only domestic foods or food 
products. This clarification of the ``Buy American'' requirement is 
consistent with the requirement for school food authority purchases in 
Sec.  210.21(d), and in Section 12(n) of the Richard B. Russell 
National School Lunch Act (42 U.S.C. 1760). We also propose to include 
the definition of domestic foods or food products used in Sec.  
210.21(d). Lastly, we propose to clarify that the ``Buy American'' 
requirement is also applicable to the cash-in-lieu-of-donated foods 
provided to school food authorities in NSLP and to child and adult care 
institutions in CACFP, in accordance with Sec. Sec.  250.56(e) and 
250.61(c), respectively.
9. Reporting Requirements, Sec.  250.18
    In Sec.  250.18, we propose to include requirements for submission 
of reports relating to the distribution and control of donated foods. 
In Sec.  250.18(a), we propose to retain the requirement, in current 
Sec.  250.17(a), that the distributing agency submit form FNS-152, 
Monthly Distribution of Donated Foods to Family Units, to report 
donated food inventories and distribution in FDPIR. However, we propose 
to remove reference to form FNS-153, Monthly Report of the Commodity 
Supplemental Food Program and Quarterly Administrative Financial Status 
Report, as the requirement for submission of this report is included in 
7 CFR part 247. We propose instead to indicate that the distributing 
agency must submit reports included in regulations for specific food 
assistance programs. We also propose to indicate that such reports must 
be submitted in accordance with the timeframes established for each 
respective report, rather than include specific timeframes for 
submission in 7 CFR part 250.
    We propose to retain the requirement, in current Sec.  250.17(a), 
that the distributing agency report excessive donated food inventories 
in TEFAP, NSLP, and other child nutrition programs to FNS, on a 
semiannual basis, utilizing form FNS-155, the Inventory Management 
Register. We propose to remove the requirement, in current Sec. Sec.  
250.13(k) and 250.17(d), that the distributing agency report commodity 
acceptability information to FNS, utilizing information collected from 
recipient agencies in NSLP, CACFP, NSIP, CSFP, and FDPIR, and submitted 
on form FNS-663, the Commodity Acceptability Report. Technological 
advances, including the evolution of request-driven ordering systems, 
over the last several years have made the collection and reporting of 
such information by the distributing agency unnecessary. FNS now 
receives information on donated food acceptability from diverse parties 
on a routine basis, through electronic communication, national 
conferences and other meetings with program operators, as well as 
through periodic reviews of its donated food offerings.
    In Sec.  250.18(b), we propose to include the requirement, in 
current Sec.  250.30(m), that processors submit monthly performance 
reports to the distributing agency to report donated food inventories, 
processing of donated foods, and sale and delivery of end products. 
However, we propose to remove the requirement that the distributing 
agency submit a report of processors' inventories to the FNS Regional 
Office, in current Sec.  250.17(b). Processors are required to submit 
monthly performance reports to FNS, eliminating the need for 
distributing agencies to submit such information to FNS.
    In Sec.  250.18(c), we propose to include the requirement, in 
Sec. Sec.  250.69(f) and 250.70(f) of this proposed rule, that the 
distributing agency submit to FNS a report of the amounts of donated 
foods used in disasters and situations of distress, utilizing 
electronic form FNS-292A, Report of Commodity Distribution for Disaster 
Relief. This form is also used to request replacement of donated foods 
used in disasters and situations of distress.

[[Page 63235]]

    In Sec.  250.18(d), we propose to retain the requirement, in 
current Sec.  250.17(e), that the distributing agency submit other 
information relating to the distribution of donated foods that may be 
requested by FNS on a periodic basis. For example, FNS may require that 
the distributing agency provide information relating to the 
distribution charge, or to support the efficiency and cost-
effectiveness of its storage and distribution system, in accordance 
with Sec.  250.13 of this proposed rule.
10. Recordkeeping Requirements, Sec.  250.19
    In Sec.  250.19, we propose to include recordkeeping requirements 
relating to the distribution and control of donated foods. In Sec.  
250.19(a), we propose to require that distributing and recipient 
agencies, and other entities, maintain records of agreements and 
contracts, reports, audits, and claim actions, funds obtained 
incidental to donated food distribution, and other records required in 
this part or in other Departmental regulations, as applicable. In 
addition to these requirements, we propose to require distributing 
agencies to keep a record of the value of donated foods received by 
each of its school food authorities in order to assist in monitoring 
distributing agency compliance with the requirement that school food 
authorities in NSLP are offered, at a minimum, the commodity offer 
value of donated foods, in accordance with Sec.  250.58; and records to 
demonstrate compliance with the professional standards for State 
directors of distributing agencies in Sec.  235.11(g) of the proposed 
rule Professional Standards for State and Local School Nutrition 
Programs Personnel as Required by the Healthy, Hunger-Free Kids Act of 
2010 (79 FR 6503 (Feb. 4, 2014)). We also propose to require that 
processors maintain records documenting the sale of end products to 
recipient agencies, including the sale of such end products by 
distributors. Specific recordkeeping requirements relating to the use 
of donated foods in contracts with food service management companies 
are included in Sec.  250.54. Lastly, we propose to include the 
provision, in current Sec.  250.16(a)(6), that failure to maintain 
required records must be considered prima facie evidence of improper 
distribution or loss of donated foods and may result in a claim against 
the responsible party for the loss of donated foods, or may result in 
other sanctions or corrective actions.
    We propose to remove the requirement, in current Sec.  
250.16(a)(3), that the distributing agency maintain records of refusal 
of donated foods by school food authorities. In accordance with a final 
rule published in the Federal Register on August 8, 2008 at 73 FR 
46169, the ``offer and refusal'' system of ordering donated foods was 
removed. We also propose to remove the requirement, in current Sec.  
250.16(a)(5), that recipient agencies maintain records of the data and 
method used to determine the number of eligible persons served. 
Recordkeeping requirements relating to the determination of 
eligibility, or the number of eligible persons served, are included in 
regulations applicable to specific programs (e.g., 7 CFR part 247 for 
CSFP).
    In Sec.  250.19(b), we propose to retain, without change, 
requirements in current Sec.  250.16(b) relating to the length of time 
that records must be retained.
11. Audit Requirements, Sec.  250.20
    In Sec.  250.20, we propose to include reference to Federal audit 
requirements for distributing and recipient agencies, and audit 
requirements for processors. In Sec.  250.20(a), we propose to 
reference audit requirements in 7 CFR part 3052 for State or local 
government agencies and nonprofit organizations that receive Federal 
grants, as such requirements apply to distributing and recipient 
agencies. In accordance with such requirements, the value of Federal 
grants or awards expended in a fiscal year determine if the 
distributing or recipient agency must obtain an audit in that year. We 
propose to clarify that the value of donated foods must be considered 
as part of the total value of the Federal grant, and to reference FNS 
guidance in valuing donated foods for audit purposes, and in 
determining if an audit is required.
    In Sec.  250.20(b), we propose to include requirements for 
processors to obtain an independent CPA audit to determine compliance 
with processing requirements for donated foods. In accordance with 
current Sec.  250.18(b), multi-State processors must obtain an 
independent CPA audit at a frequency determined by the value of the 
donated foods they receive for processing in a year. Currently, a 
multi-State processor must obtain an independent CPA audit for any year 
in which it receives more than $250,000 in donated foods; every two 
years, if it receives $75,000 to $250,000 in donated foods each year; 
and every three years, if it receives less than $75,000 in donated 
foods each year. Such audits must be paid for by the processor.
    We propose to amend the current audit requirement for multi-State 
processors by requiring that a multi-State processor obtain an 
independent CPA audit in each of the first two years that it receives 
donated foods for processing, regardless of the value of donated foods 
received, to ensure that new processors receive appropriate oversight 
as they establish their processing programs. After the first two years, 
we propose to require a multi-State processor to obtain such an audit 
at a frequency determined by the average value of donated foods 
received for processing per year, as currently required. However, we 
propose to revise upward the current thresholds for determining the 
required frequency of such audits to reflect the much larger volume of 
donated foods provided to such processors for processing over the last 
several years. Hence, we propose to require a multi-State processor to 
obtain an independent CPA audit:

    (1) Annually, if it receives, on average, more than $5,000,000 
in donated foods for processing per year;
    (2) Every two years, if it receives, on average, between 
$1,000,000 and $5,000,000 in donated foods for processing per year; 
and
    (3) Every three years, if it receives, on average, less than 
$1,000,000 in donated foods for processing per year.

    In-State processors are not currently required to obtain an 
independent CPA audit. In order to ensure compliance with program 
requirements, the distributing agency must conduct an on-site review of 
in-State processors at least once every two years, in accordance with 
current Sec.  250.19(b)(1)(iii). However, the performance of on-site 
reviews is a costly and time-consuming exercise for distributing 
agencies, and we are proposing to remove this requirement, as discussed 
in section II.B.13 of the preamble. We propose, instead, to require 
that an in-State processor obtain an independent CPA audit to determine 
compliance with processing requirements for donated foods in the first 
year that it receives donated foods for processing. After the first 
year, we propose to require an in-State processor to obtain such an 
audit at a frequency determined by the average value of donated foods 
received for processing per year, using the same thresholds for 
determining such frequency as we are proposing for multi-State 
processors. Due to the lower volume of donated foods received by in-
State processors, we expect that, after the first year, in-State 
processors would be subject to the audit requirement every three years. 
As currently required for multi-State processors, we propose to require 
that in-State processors pay the cost of the audit.
    We propose to require that the donated food value utilized must be 
the contract value of the donated foods, as

[[Page 63236]]

defined in Sec.  250.2 of this proposed rule. We also propose to 
clarify that audits must determine processor compliance with the 
requirements in this part, and must be conducted in accordance with the 
FNS Audit Guide for Processors. However, we propose to remove the 
current stipulation that FNS may require auditors to attend training 
sessions conducted by the Department. Although training may still be 
provided, FNS provides written guidance and technical assistance for 
auditors on an ongoing basis.
    In Sec.  250.20(c), we propose to include the actions required of 
processors resulting from the audits. We propose to require that in-
State processors submit a copy of the audit to the distributing agency 
for review by December 31 of each year in which an audit is required. 
We propose to require the distributing agency to ensure that in-State 
processors provide a corrective action plan with timelines for 
correcting deficiencies identified in the audit, and that such 
deficiencies are corrected. We propose to include the requirement in 
current Sec.  250.18(b) that multi-State processors submit a copy of 
the audit, and a corrective action plan with timelines to correct 
deficiencies identified in the audit, as appropriate, to FNS for review 
by December 31 of each year in which an audit is required. This will 
permit FNS and distributing agencies to review audit findings, follow 
up on required corrective actions, and monitor noncompliance issues for 
the purpose of identifying trends and implementing program 
improvements.
    In Sec.  250.20(d), we propose to indicate that a distributing or 
recipient agency is subject to sanctions for failure to obtain the 
required audit, or for failure to correct deficiencies identified in 
audits. Such sanctions may include the withholding, suspension, or 
termination of a Federal award. We propose to indicate that, if a 
processor fails to obtain the required audit, or to correct 
deficiencies identified in audits, a distributing or recipient agency 
may terminate the processing contract or agreement, and may not extend 
or renew such a contract or agreement. We also propose to include the 
stipulation, in current Sec.  250.18(b)(5), that FNS may prohibit the 
further distribution of donated foods to a processor for its failure to 
comply with audit requirements.
12. Distributing Agency Reviews, Sec.  250.21
    In Sec.  250.21, we propose to include the requirements for the 
distributing agency to review subdistributing agencies, recipient 
agencies, and other entities to ensure compliance with requirements 
relating to the distribution and control of donated foods. In Sec.  
250.21(a), we propose to clarify and streamline review requirements in 
current Sec.  250.19. We propose to require that the distributing 
agency ensure compliance with requirements in 7 CFR part 250, and in 
other Federal regulations as applicable, through its review of required 
reports, and through on-site reviews of the recipient agencies and 
other entities indicated in Sec.  250.21(b) of this proposed rule. The 
required reports for review may include audit reports, processors' 
monthly performance reports, and inventory reports submitted in CSFP 
and FDPIR. We also propose to clarify that the distributing agency is 
not required to review school food authorities and other recipient 
agencies in child nutrition programs. The State administering agency 
(which may be different from the distributing agency) is responsible 
for the review of such recipient agencies in accordance with review 
requirements of Part 210. Lastly, we propose to remove specific review 
procedures included in current Sec.  250.19(b)(1), such as the review 
of recipient agency eligibility and civil rights requirements, as they 
do not apply to all programs, and are included in Federal regulations 
for specific programs in which they do apply.
    We propose to include current on-site review requirements of 
charitable institutions, and of storage facilities at the distributing 
agency level, in Sec.  250.21(b), and to add a reference to the 
distributing agency's requirement to perform on-site reviews of 
subdistributing and recipient agencies in CSFP, TEFAP, and FDPIR, in 
accordance with 7 CFR parts 247, 251, and 253, respectively. However, 
we propose to remove the requirement, in current Sec.  
250.19(b)(1)(iii), that the distributing agency perform on-site reviews 
of in-State processors. The on-site review would be replaced by review 
of the audits required of such processors, in accordance with Sec.  
250.20 of this proposed rule.
    We propose to remove the requirement in current Sec.  250.19(b)(2), 
that the distributing agency develop a system to verify sales of end 
products when a processor delivers end products to a distributor for 
sale to recipient agencies under a discount method of sales. Processors 
receive notification of such end product sales from the distributor, 
usually by electronic means, and the processor must maintain records of 
such sales, in accordance with current Sec.  250.30(k)(2), and with 
Sec.  250.19(a) of this proposed rule. Such records would be reviewed 
by auditors, in conducting the audits required in accordance with Sec.  
250.20(b) of this proposed rule. Consequently, all end product sales 
may be verified through the review of audit reports, as well as through 
the distributing agency's review of the processor's monthly performance 
reports. The distributing agency may also require, at its option, that 
the processor submit documentation to support information included in 
the processor's performance report, including sales of end products to 
recipient agencies. The State administering agency may also review 
school food authorities' records, in order to ensure receipt of the 
requisite quantity of end products, in accordance with the 
administrative review required in 7 CFR part 210.
    In Sec.  250.21(c), we propose to include the requirement, in 
current Sec.  250.19(b)(3) and (b)(4), that the distributing agency 
report deficiencies identified in its review to recipient agencies or 
other entities, recommend corrective actions, and ensure that such 
actions are completed. We propose to remove the requirement in current 
Sec.  250.19(b)(6) that the distributing agency require that 
subdistributing agencies monitor and review their own operations. Such 
responsibility must reside with the distributing agency, in accordance 
with Sec.  250.4(a) of this proposed rule.
13. Distributing Agency Performance Standards, Sec.  250.22
    In Sec.  250.22, we propose to include the performance standards 
that the distributing agency must meet, most of which are included in 
current Sec.  250.24. Performance standards are meant to highlight the 
most important areas of oversight for distributing agencies relating to 
donated foods; however, the current standards cover a wide area. In 
Sec.  250.22(a), we propose to revise the performance standards to 
include only those relating to oversight of requirements in the 
ordering, distribution, processing, and control of donated foods, as 
such requirements are proposed in this rule. We propose to revise the 
performance standard relating to the provision for processing of 
donated foods to clarify that the distributing agency must provide for 
such processing, at the request of school food authorities, in 
accordance with the processing requirements in Subpart C of 7 CFR part 
250. Most distributing agencies already provide for processing of 
donated foods into end products, which permit school food authorities 
to more easily prepare and serve meals in NSLP. We propose to include 
clarification that some performance

[[Page 63237]]

standards are applicable only to distributing agencies that distribute 
donated foods in NSLP or other child nutrition programs. We propose an 
additional performance standard, ensuring distributing agencies provide 
recipient agencies information regarding the preferred method for the 
submission of donated food complaints to the distributing agency and 
that distributing agencies act expeditiously to resolve submitted 
complaints. Lastly, we propose to clarify that the identification of 
specific performance standards does not relieve the distributing agency 
of the responsibility to meet other requirements in 7 CFR part 250.
    In Sec.  250.22(b), we propose to include the requirement, in 
current Sec.  250.19(c), that the distributing agency submit a 
corrective action plan to FNS if it is found to be substantially out of 
compliance with the performance standards. We propose to retain the 
current requirements that the plan identify the corrective actions to 
be taken, the timeframe for completion of such actions, and that the 
distributing agency must submit the plan to FNS within 60 days after 
receiving notification of a deficiency. Failure of a distributing 
agency to submit a timely corrective action plan to FNS may be 
considered a violation of this part, and therefore subject to 
suspension or termination under Sec.  250.3(c).
    In Sec.  250.22(c), we propose to include the provision, in current 
Sec.  250.20, that FNS may terminate the distributing agency's 
participation in the distribution of donated foods, or in a food 
distribution program, for failure to comply with requirements in 7 CFR 
part 250, with other applicable Federal regulations, or with its 
written agreement with FNS. We propose to indicate that FNS may also 
choose to suspend, rather than terminate, such participation, or may 
terminate or suspend some, but not all, activities. In certain 
situations, suspending all or part of a program rather than terminating 
the program in its entirety will allow FNS to continue serving program 
participants while pursuing corrective actions. Lastly, we propose to 
include the stipulation, in current Sec.  250.20, that FNS may also 
take other actions, as appropriate, including prosecution under 
applicable Federal statutes.

C. Subpart C--Processing and Labeling of Donated Foods

    We propose to amend current Subpart C of 7 CFR part 250 to reduce 
reporting requirements relating to the processing of donated foods, and 
to remove the requirement that the processor make a payment to the 
distributing agency for the value of excessive donated food inventories 
at the annual reconciliation. We also propose to update regulatory 
references to conform to other changes proposed in this rule, and to 
replace reference to ``FNSRO'' with ``FNS Regional Office'' given that 
the rule proposes to remove the definition of ``FNSRO'' from the 
definitions section of the rule, in proposed Sec.  250.2.
    We propose to remove the requirement, in current Sec.  
250.30(k)(3), that the processor submit copies of requests for refunds 
and refund payments to the distributing agency. We also propose to 
remove the requirements, in current Sec.  250.30(n)(4) and Sec.  
250.30(o), that the distributing agency submit monthly performance 
reports, or information from such reports, to FNS on a periodic basis.
    In accordance with the proposal to remove the requirement that the 
distributing agency develop a sales verification system for end product 
sales, as described in section II.B.12 of the preamble, we propose to 
remove the requirement, in current Sec.  250.30(m)(1)(viii), that the 
processor report sales verification findings to the distributing 
agency. We also propose to remove current Sec.  250.30(m)(1)(vii), 
which is reserved. Accordingly, we propose to redesignate Sec.  
250.30(m)(1)(ix) as Sec.  250.30(m)(1)(vii).
    In accordance with current Sec.  250.30(n)(3), as part of the 
annual reconciliation, a processor that has contracted with the 
distributing agency for the following year must first reduce any 
excessive donated food inventories by paying the distributing agency 
for the value of such donated foods. While such cash-out of donated 
food inventories may be the best option in certain instances, in other 
cases a transfer of such inventories to another distributing agency or 
processor may be the better option. Therefore, we propose to revise 
current Sec.  250.30(n)(3) to instead require such processor to reduce 
excessive donated food inventories. Policy Memorandum FD-064, 
Management of Donated Food Inventories at Processors, which was 
implemented in revised form on March 20, 2012, provides several options 
for reduction of excessive donated food inventories at processors.
    We propose to remove requirements in current Sec.  250.30(q) that 
the FNS Regional Office review processing contracts and inventory 
reports, and in current Sec.  250.30(r), which indicates that FNS will 
provide copies of contracts upon request. Such contracts and inventory 
reports are currently reviewed by FNS Headquarters staff. In accordance 
with the removal of paragraphs (o), (q), and (r) of this section, 
paragraphs (p), (s), and (t) would be redesignated as paragraphs (o), 
(p), and (q) of this section, respectively.

D. Subpart D--Donated Foods in Contracts With Food Service Management 
Companies

    We propose to amend current Subpart D of 7 CFR part 250 to clarify 
requirements in the storage, control, and use of donated foods in 
contracts with food service management companies. In current Sec.  
250.50(a), we propose to clarify that the food service management 
company must use all donated foods received in the recipient agency's 
food service, or must use commercial substitutes in place of such 
donated foods only as permitted in Sec.  250.51(d). We propose to 
revise current Sec.  250.52(a) to clarify that the food service 
management company must meet the requirements in Sec.  250.14(a) of 
this proposed rule for the safe storage and control of donated foods.

E. Subpart E--National School Lunch Program (NSLP) and Other Child 
Nutrition Programs

    We propose to amend current Subpart E of 7 CFR part 250 to ensure 
that school food authorities are able to order and receive the donated 
foods that they may best utilize in the school food service, and to 
clarify requirements for school food authorities in the storage, 
inventory management, and use of donated foods. In order to accomplish 
this, we propose to revise current paragraphs Sec.  250.58(a) and (e), 
and to consolidate current Sec. Sec.  250.59 and 250.60 into a revised 
Sec.  250.59. Current Sec. Sec.  250.61 and 250.62 would be 
redesignated as Sec. Sec.  250.60 and 250.61, respectively.
    In Sec.  250.58(a), we propose to remove reference to the 
Electronic Commodity Ordering System (ECOS), as donated food orders are 
now placed through a new FNS electronic donated foods ordering system, 
currently named Web Based Supply Chain Management (WBSCM). Although all 
distributing agencies currently submit orders and other information to 
FNS through the FNS electronic donated foods ordering system, not all 
States have rolled down such system to their school food authorities. 
Nevertheless, we propose to require that the distributing agency ensure 
that all school food authorities are able to submit orders for donated 
foods through the FNS electronic donated foods ordering system, or 
through a comparable electronic ordering system. Direct submission of 
orders by school food authorities better ensures that they receive the 
preferred

[[Page 63238]]

types and forms of donated foods, and at a time when they may best 
utilize such foods in the school food service. We propose to require 
that the distributing agency ensure that all school food authorities 
have the opportunity to provide input on at least an annual basis in 
determining which donated foods, from the full list of donated foods, 
will be made available to them for ordering electronically through the 
FNS electronic donated foods ordering system or another system. 
Providing school food authorities with the opportunity to order the 
types and forms of foods that they have expressed a preference for will 
help them to maximize their use of donated foods to meet the nutrition 
standards in the National School Lunch Program and to prevent waste. 
Lastly, we propose to require that the distributing agency ensure 
distribution to school food authorities of all such ordered donated 
foods that may be distributed to them in a cost-effective manner 
(including the use of split shipments, as necessary), and that they may 
efficiently utilize so as to minimize the cost to school food 
authorities of receiving donated foods.
    In Sec.  250.58(e), we propose to require that the distributing 
agency use either the donated food cost-per-pound prices posted 
annually by USDA or the most recently published cost-per-pound in the 
USDA donated foods catalog in offering the school food authority the 
commodity offer value of donated foods, as required in Sec.  250.58(b). 
In crediting the school food authority's donated food assistance level, 
currently the distributing agency may choose among three options in 
valuing donated foods, including the commodity file cost as of a 
specified date and the estimated cost-per-pound data included in 
commodity survey memoranda. Instead, we propose that the distributing 
agency use the USDA purchase price (cost-per-pound) in crediting the 
school food authority's donated food assistance level, and that the 
distributing agency update this price at least semi-annually to reflect 
the most recent purchase price. This will better reflect the actual 
benefit received by the school food authority.
    In Sec.  250.59(a), we propose to reference the storage and 
inventory requirements in Subpart B of 7 CFR part 250 applicable to 
distributing agencies to ensure the safe and effective storage and 
control of donated foods. We propose to indicate that the school food 
authority must ensure the safe and sanitary storage, inventory 
management, and use of donated foods and purchased foods, in accordance 
with requirements in current Sec.  210.13. In accordance with Sec.  
250.14(c) of this proposed rule, the school food authority may 
commingle donated foods and purchased foods in a single inventory 
management system. We propose to remove the current provision that 
permits the distributing agency to determine if the school food 
authority may exercise the single inventory option, or must continue to 
maintain and track donated food inventories separately from its 
purchased foods. Separate inventory tracking of donated foods would be 
an unnecessary burden for school food authorities, and it is important 
that single inventory management be implemented consistently in all 
States.
    In Sec.  250.59(b), we propose to include the requirements in 
current Sec.  250.60(a) for the use of donated foods in the nonprofit 
school food service, with only minor clarifications. In Sec.  
250.59(c), we propose to include contingencies and requirements in 
current Sec.  250.60(b) for the use of donated foods outside of the 
nonprofit school food service, again with only minor clarifications. In 
Sec.  250.59(d), we propose to include requirements in current Sec.  
250.60(c) for donated foods in contracts with food service management 
companies in a more streamlined form, but without substantive changes.
    In Sec.  250.59(e), we propose to clarify requirements for two or 
more school food authorities acting as a collective unit in conducting 
activities relating to donated foods. School food authorities often 
perform activities in a collaborative manner through school co-ops or 
consortia, in order to minimize costs and improve efficiency of 
operations. We propose to clarify that the school collective unit is 
subject to the same requirements pertaining to such donated food 
activities as a single school food authority. For example, the school 
collective unit may commingle donated foods and purchased foods in a 
single inventory management system.

F. Subpart F--Household Programs

    We propose to revise current Subpart F to streamline and clarify 
current descriptions of, and requirements for, the distribution of 
donated foods in CSFP and FDPIR, and to include such information for 
TEFAP. We propose to remove reference to the Food Distribution Program 
in the Trust Territory of the Pacific Islands, as all distribution of 
donated foods in this program has been cashed out. We also propose to 
remove reference to the Special Supplemental Nutrition Program for 
Women, Infants, and Children (i.e., the WIC Program), as donated food 
distribution in that program was discontinued several years ago. 
Accordingly, we propose to include the following new sections in the 
revised Subpart F.
1. Commodity Supplemental Food Program (CSFP), Sec.  250.63
    In Sec.  250.63(a), we propose to clarify that the Department 
distributes donated foods in CSFP to the distributing agency for 
further distribution in the State, in accordance with 7 CFR part 247. 
We also propose to clarify that State and recipient agencies must 
comply with the requirements of 7 CFR part 250 in the distribution, 
control, and use of donated foods in CSFP, to the extent that such 
requirements are not inconsistent with the requirements in 7 CFR part 
247. In Sec.  250.63(b), we propose to clarify the types of donated 
foods distributed in CSFP, in accordance with the legislation 
authorizing the purchase of such foods.
2. The Emergency Food Assistance Program (TEFAP), Sec.  250.64
    In Sec.  250.64, we propose to include a description of the 
distribution of donated foods in TEFAP. In Sec.  250.64(a), we propose 
to clarify that the Department distributes donated foods in TEFAP to 
the distributing agency for further distribution in the State, in 
accordance with 7 CFR part 251. We also propose to clarify that State 
and recipient agencies must comply with the requirements of 7 CFR part 
250 in the distribution, control, and use of donated foods in TEFAP, to 
the extent that such requirements are not inconsistent with the 
requirements in 7 CFR part 251. In Sec.  250.64(b), we propose to 
clarify the types of donated foods distributed in TEFAP, in accordance 
with the legislation authorizing the purchase of such foods.
3. Food Distribution Program on Indian Reservations (FDPIR), Sec.  
250.65
    In Sec.  250.65(a), we propose to clarify that the Department 
distributes donated foods in FDPIR to the distributing agency for 
further distribution, in accordance with 7 CFR parts 253 and 254. We 
also propose to clarify that the distributing agency may be a State 
agency or Indian Tribal Organization, and must comply with the 
requirements of 7 CFR part 250 in the distribution, control, and use of 
donated foods in FDPIR, to the extent that such requirements are not 
inconsistent with the requirements in 7 CFR parts 253 and 254. In Sec.  
250.65(b), we propose to clarify the types of donated foods distributed 
in FDPIR, in accordance with the legislation authorizing the purchase 
of such foods.

[[Page 63239]]

G. Subpart G--Additional Provisions

    We propose to amend current Subpart G of 7 CFR part 250 by revising 
the Subpart heading to read Additional Provisions, by clarifying 
requirements for the distribution of donated foods in disasters and 
situations of distress, and by adding a provision which identifies the 
OMB assigned information collection and recordkeeping control numbers. 
In order to accomplish this, we propose to revise the heading of 
Subpart G, as well as current Sec. Sec.  250.69 and 250.70, and we 
propose to add Sec.  250.71.
1. Disasters, Sec.  250.69
    We propose to revise current Sec.  250.69 to clarify requirements 
for the distribution and use of donated foods in a disaster, 
contingencies for replacement of such foods, and reporting 
requirements. In accordance with Sec.  250.2 of this proposed rule, the 
term ``disaster'' includes a Presidentially declared disaster or 
emergency (e.g., a pandemic); therefore, we refer simply to a disaster 
in this section. In Sec.  250.69(a), we propose to retain the current 
provision that the distributing agency may provide donated foods from 
current inventories, at the distributing or recipient agency level, to 
approved disaster organizations for use in providing congregate meal 
assistance to persons in need of food assistance as a result of a 
disaster. We propose to retain the current authority for the 
distributing agency to provide such assistance without FNS approval. 
However, we propose to clarify that the distributing agency must notify 
FNS that donated foods will be provided, and the period of time that 
they are expected to be needed. If such period of time is extended, the 
distributing agency must notify FNS of the extension.
    In Sec.  250.69(b), we propose to retain the current provision that 
the distributing agency may provide donated foods to disaster 
organizations for distribution to households in need of food assistance 
once FNS approval has been obtained for such distribution. We propose 
to clarify that such assistance may continue for the period of time 
that FNS determines necessary to meet the needs of such households. We 
propose to retain the prohibition for households to simultaneously 
receive disaster Supplemental Nutrition Assistance Program (D-SNAP) 
benefits (formerly disaster food stamps) and donated food assistance.
    In Sec.  250.69(c), we propose to retain the current requirement 
that the distributing agency review and approve a disaster 
organization's application to provide donated food disaster assistance, 
before distributing donated foods to such organization. We also propose 
to retain the current requirement that, for distribution of donated 
foods to households, the application must also be forwarded to FNS for 
approval. We propose to retain the current required elements of such 
applications, including those additional elements required for 
distribution of donated foods to households.
    In Sec.  250.69(d), we propose to include the current requirement 
that disaster organizations collect information from households 
receiving donated foods, if issuance of D-SNAP benefits has also been 
approved, in order to ensure that households receiving D-SNAP benefits 
do not also receive donated foods. We propose to retain the current 
information that must be collected from such households. We also 
propose to include the current requirements that such household 
information be reported to the distributing agency, and that the 
distributing agency maintain a record of such information.
    In Sec.  250.69(e), we propose to include the provision, in current 
Sec.  250.13(d)(1), that permits disaster relief workers to receive 
meals containing donated foods as an incident of their service to 
eligible recipients. However, we propose to clarify that any emergency 
relief workers at the congregate feeding site who are directly engaged 
in providing relief assistance may be served congregate meals 
containing donated foods.
    In Sec.  250.69(f), we propose to include the current requirement 
that the distributing agency report to FNS the number and location of 
sites where donated foods are used in congregate meals or household 
distribution, as these sites are established. We also propose to retain 
the requirement that the distributing agency provide a report of the 
types and amounts of donated foods used in disaster assistance. 
However, we propose to require this information to be reported 
electronically, utilizing form FNS-292A, Report of Commodity 
Distribution for Disaster Relief.
    In Sec.  250.69(g), we propose to include the current provision for 
FNS replacement of donated foods used in disasters, as requested by the 
distributing agency. However, we propose to require that such 
information must be reported within 45 days of termination of disaster 
assistance, rather than the current 30 day period. Also, we propose to 
require that such replacement be requested electronically, utilizing 
form FNS-292A, Report of Commodity Distribution for Disaster Relief, 
along with the report of the donated foods used in the disaster. 
Lastly, we propose to clarify that, for food diverted from inventories 
of recipient agencies in child nutrition programs, FNS will replace 
such food if the recipient agency received the same types of donated 
food during the year preceding the onset of the disaster assistance. 
Such recipient agencies may commingle donated foods and commercially 
purchased foods in a single inventory management system, which makes it 
difficult to ascertain which foods are actually used. We propose to 
clarify that such replacement will be in the amount of food used, but 
not to exceed the amount of like donated food received during the 
preceding year.
    In Sec.  250.69(h), we propose to indicate that FNS will, upon 
receiving a distributing agency request via public voucher, reimburse 
the distributing agency for any costs incurred in transporting donated 
foods within the State, or from one State to another, for use in 
disasters.
2. Situations of Distress, Sec.  250.70
    We propose to revise current Sec.  250.70 to clarify requirements 
for the distribution and use of donated foods in a situation of 
distress (as defined in Sec.  250.2 of this proposed rule), 
contingencies for replacement of such foods, and reporting 
requirements. As in a disaster, donated foods may be used to provide 
assistance in a situation of distress, but requirements for the use of 
such foods, and conditions for their replacement, are somewhat 
different. In Sec.  250.70(a), we propose to retain the current 
conditions for the distributing agency to provide donated foods to 
approved disaster organizations for use in providing congregate meals 
to persons in need of food assistance as a result of a situation of 
distress. In accordance with current requirements, FNS approval is not 
required for such use if the situation of distress is the result of a 
natural event--e.g., a hurricane, flood, or snowstorm--and if its 
duration will not exceed 30 days. However, we propose to clarify that 
the distributing agency must notify FNS that donated food assistance is 
to be provided. FNS approval is required to permit such donated food 
assistance for a period exceeding 30 days. We propose to clarify that 
FNS approval is required to permit donated food assistance in providing 
congregate meals in a situation of distress that is not the result of a 
natural event (e.g., an explosion), for any period of time. As with 
disasters, the distributing agency may

[[Page 63240]]

use donated foods from current inventories at the distributing or 
recipient agency level.
    In Sec.  250.70(b), we propose to retain the current requirement 
that the distributing agency obtain FNS approval to provide donated 
foods to approved disaster organizations for distribution to households 
in a situation of distress. We propose to clarify that such assistance 
may continue for the period of time that FNS determines necessary to 
meet the needs of such households. In accordance with current 
restrictions, households receiving D-SNAP benefits are not eligible to 
also receive donated foods.
    In Sec.  250.70(c), we propose to retain the current requirement 
that the disaster organization submit an application to the 
distributing agency, for its review and approval, to receive donated 
foods to provide assistance in a situation of distress. For 
distribution of donated foods in a situation of distress that is not 
the result of a natural event, or for any distribution of donated foods 
to households, we propose to clarify that, once the distributing agency 
approves the application, it must submit the application to FNS for 
approval. We propose to require the same elements for all such 
applications as we propose to be included for applications in a 
disaster, in accordance with Sec.  250.69(c) of this proposed rule.
    In Sec.  250.70(d), we propose to retain the current requirement 
that disaster organizations collect specific information from 
households receiving donated foods in a situation of distress, if 
issuance of D-SNAP benefits has also been approved. We propose to 
include the same information that is required to be collected from 
households in a disaster, to require that such information be reported 
to the distributing agency, and that the distributing agency maintain a 
record of such information. In Sec.  250.70(e), we propose to clarify 
that emergency relief workers may receive meals containing donated 
foods at a congregate feeding site in a situation of distress in 
accordance with the same conditions that apply in a disaster in Sec.  
250.69(e) of this proposed rule.
    In Sec.  250.70(f), we propose to include the current requirement 
that the distributing agency report to FNS the number and location of 
sites where donated foods are used in congregate meals or household 
distribution, as these sites are established. We also propose to 
require the distributing agency to report the types and amounts of 
donated foods used in the situation of distress electronically, 
utilizing form FNS-292A, Report of Commodity Distribution for Disaster 
Relief, within the same 45-day time period as required for disasters.
    In Sec.  250.70(g), we propose to include the current contingencies 
for the replacement of donated foods used in situations of distress. 
FNS will replace such foods to the extent that funds are available to 
purchase replacement foods, and if the distributing agency requests 
such replacement within 45 days following the termination of such 
assistance. This is longer than the 30 days that distributing agencies 
currently have to request replacement of these foods. However, we 
propose to require that such replacement be requested electronically, 
utilizing form FNS-292A, Report of Commodity Distribution for Disaster 
Relief, along with the report of the donated foods used in the 
situation of distress. We also propose to clarify that, subject to the 
above conditions, FNS will replace foods diverted from inventories of 
recipient agencies in child nutrition programs if the recipient agency 
received the same types of donated food during the year preceding the 
onset of the assistance. Such replacement will be in the amount of food 
used, but not to exceed the amount of like donated food received during 
the preceding year.
    In Sec.  250.70(h), we propose to indicate that FNS will, upon 
receiving a distributing agency request via public voucher, reimburse 
the distributing agency, to the extent that funds are available, for 
any costs incurred in transporting donated foods within the State, or 
from one State to another, for use in a situation of distress.
    In Sec.  250.71 we propose to add a provision providing the current 
OMB assigned control numbers for the information collection and 
recordkeeping provisions in 7 CFR part 250.

7 CFR Part 251

    We propose to amend 7 CFR part 251 to conform certain requirements 
for distribution of donated foods in TEFAP to requirements for such 
distribution in other programs, or with changes to 7 CFR part 250 
proposed in this rule. We propose to remove current Sec.  251.4(f)(4), 
which requires that the external shipping containers and product labels 
of processed end products distributed in TEFAP identify them as USDA 
donated food products. The removal of this requirement would conform to 
requirements for unprocessed donated foods distributed in TEFAP, as 
well as other programs, which do not require such identification. In 
accordance with this proposal, we propose to redesignate current Sec.  
251.4(f)(5) as Sec.  251.4(f)(4).
    We propose to revise current Sec.  251.4(g) to require TEFAP 
donated foods to be distributed and used in accordance with the 
requirements in 7 CFR part 251, and with the requirements in 7 CFR part 
250, to the extent that such requirements are not inconsistent with the 
requirements in 7 CFR part 251. We propose to align requirements in the 
transfer of TEFAP foods, and in ensuring restitution for losses of 
TEFAP foods, with such requirements for other donated foods, as 
proposed in this rule.
    We propose to require that transfers of TEFAP donated foods comply 
with requirements in Sec. Sec.  250.12(d) and 250.14(d) of this 
proposed rule, as applicable. We propose to clarify that the State 
agency must ensure that restitution is made for the loss of TEFAP 
donated foods, or for the loss or improper use of funds provided for, 
or obtained as an incident of, the distribution of such foods, in 
accordance with Sec.  250.16 of this proposed rule. Lastly, we propose 
to indicate that the State agency is subject to claims for such losses 
for which it is responsible, as well as for its failure to initiate or 
pursue claims against other parties responsible for such losses. We 
propose to remove current Sec.  251.4(l), as the requirements for 
ensuring restitution for losses of donated foods are included in 
proposed Sec.  250.16.

III. Procedural Matters

A. Public Comment Procedures

    Your written comments on this proposed rule should be specific, 
confined to issues pertinent to the proposed rule, and should explain 
your reasons for any change recommended. Where possible, you should 
reference the specific section or paragraph of the proposal you are 
addressing. Comments received after the close of the comment period 
(see DATES) will not be considered or included in the Administrative 
Record for the final rule.
    The comments, including names, street addresses, and other contact 
information of commenters, will be available for public review at FNS, 
Room 500, 3101 Park Center Drive, Alexandria, Virginia, during regular 
business hours (8:30 a.m. to 5 p.m.), Mondays through Fridays, except 
Federal holidays.
    Executive Order 12866 requires each agency to write regulations 
that are simple and easy to understand. We invite your comments on how 
to make these regulations easier to understand, including answers to 
questions such as the following:

[[Page 63241]]

    (1) Are the requirements in the rule clearly stated?
    (2) Does the rule contain technical language or jargon that 
interferes with its clarity?
    (3) Does the format of the rule (grouping and order of sections, 
use of headings, paragraphs, etc.) make it more or less clear?
    (4) Would the rule be easier to understand if it were divided into 
more (but shorter) sections?
    (5) Is the description of the rule in the preamble section entitled 
``Background and Discussion of the Proposed Rule'' helpful in 
understanding the rule? How could this description be more helpful?

B. Executive Order 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This proposed rule has been determined to be not 
significant and was not reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866.

C. Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). 
Pursuant to that review, it has been certified that this action will 
not have a significant impact on a substantial number of small 
entities. Although the rule would require specific procedures for 
distributing and recipient agencies to follow in the distribution and 
control of donated foods, USDA does not expect them to have a 
significant impact on such entities.

D. Public Law 104-4, Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, FNS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, or Tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule. This rule contains no Federal mandates (under 
the regulatory provisions of Title II of the UMRA) for State, local, 
and Tribal governments or the private sector of $100 million or more in 
any one year. This rule is, therefore, not subject to the requirements 
of sections 202 and 205 of the UMRA.

E. Executive Order 12372

    The donation of foods in USDA food distribution and child nutrition 
programs is included in the Catalog of Federal Domestic Assistance 
under 10.555, 10.558, 10.559, 10.565, 10.567, and 10.569. For the 
reasons set forth in the final rule in 7 CFR part 3015, Subpart V and 
related Notice (48 FR 29115, June 24, 1983), the donation of foods in 
such programs is included in the scope of Executive Order 12372, which 
requires intergovernmental consultation with State and local officials.

F. Executive Order 13132

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132. FNS has 
considered the impact of this rule on State and local governments and 
has determined that this rule does have Federalism implications.
1. Prior Consultation With State Officials
    The programs affected by the regulatory proposals in this rule are 
all State-administered, Federally-funded programs. Hence, our national 
headquarters office has formal and informal discussions with State and 
local officials, as well as commercial contractors, on an ongoing basis 
regarding issues relating to the distribution and control of donated 
foods. FNS attends annual conferences of the American Commodity 
Distribution Association, a national group with State, local, and 
industry representation, and the School Nutrition Association, as well 
as other conferences.
2. Nature of Concerns and the Need to Issue This Rule
    The rule addresses the concerns of program operators that 
distribute and use donated foods in food distribution and child 
nutrition programs. The rule would reduce the reporting and 
administrative workload for distributing and recipient agencies 
involved in the distribution and control of donated foods.
3. Extent to Which We Meet Those Concerns
    FNS has considered the impact of the proposed rule on State and 
local agencies. The overall effect of this rule is to ensure that such 
agencies are able to utilize and distribute donated foods safely and 
efficiently, with a minimal reporting and recordkeeping burden. FNS is 
not aware of any case in which the provisions of the rule would preempt 
State law.

G. Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This proposed rule, when finalized, would have 
preemptive effect with respect to any State or local laws, regulations, 
or policies which conflict with its provisions or which would otherwise 
impede its full implementation. This proposed rule would not have 
retroactive effect. Prior to any judicial challenge to the provisions 
of this rule or the application of its provisions, all applicable 
administrative procedures must be exhausted.

H. Civil Rights Impact Analysis

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

I. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, this notice

[[Page 63242]]

invites the general public and other public agencies to comment on this 
proposed information collection. This collection is a revision of a 
currently approved collection, OMB#0584-0293.
    Written comments must be received on or before January 20, 2015. 
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 shall 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 that were 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 use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    Comments may be sent to Dana Rasmussen, at the address listed in 
the ADDRESSES section of this preamble. Comments may also be submitted 
via email to [email protected]. Comments will also be 
accepted through the Federal eRulemaking Portal. Go to http://www.regulations.gov, and follow the online instructions for submitting 
comments electronically. Commenters are asked to separate their 
comments on the information collection requirements from their comments 
on the remainder of the proposed rule.
    Title: Food Distribution Forms.
    OMB Number: 0584-0293.
    Expiration Date: 09/30/2016.
    Type of Request: Revision of a currently approved collection.
    Abstract: This is a revision of an existing information collection 
based on a proposed rule titled Proposed Changes to the Requirements 
for the Distribution and Control of Donated Foods, which substantially 
re-writes 7 CFR part 250. The rule proposes to revise and clarify 
requirements in 7 CFR part 250 to ensure that USDA donated foods are 
distributed, stored, and managed in the safest, most efficient, and 
cost-effective manner, at State and recipient agency levels. The rule 
would also reduce administrative and reporting requirements for State 
distributing agencies, revise or clarify regulatory provisions relating 
to accountability for donated foods, and rewrite much of 7 CFR part 250 
in a more user-friendly, ``plain language,'' format. Lastly, the rule 
proposes to revise and clarify specific requirements in 7 CFR part 251 
to conform more closely to related requirements in 7 CFR part 250. This 
revision also includes provisions inadvertently omitted in the 
currently approved information collection, substantially revises other 
provisions which were inaccurate, and updates all relevant aspects of 
information collection requirements in the package.
    Affected Public: Respondent groups include: (1) Individuals and 
households; (2) businesses or other for-profit agencies; (3) not for 
profit organizations; and (4) State, local, and Tribal governments.
    Estimated Number of Respondents: The total estimated number of 
respondents is 636,478. This includes 611,200 individuals and 
households, 2,812 businesses and other for-profit companies, 1,600 
private not-for-profit organizations, and 20,866 State, Local, and 
Tribal governments.
    Estimated Number of Responses per Respondent: The total estimated 
average number of responses is 6.10 per respondent.
    Estimated Total Annual Responses: 3,879,952.
    Estimated Time per Response: The average response time is 0.30 
hours per response.
    Estimated Total Annual Burden on Respondents: See the table below 
for estimated total annual burden for each type of respondent.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Number of                        Estimated total
                       Affected public                          Estimated number    responses per     Total annual        hours per      Estimated total
                                                                 of respondents      respondent         responses         response           burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
State, Local, and Tribal Governments.........................          20,866                11.16        232,774.24              0.26         59,589.50
Private for Profit...........................................           2,812               305.10        857,949.00              0.03         24,566.72
Private Not for Profit.......................................           1,600                 2.03          3,240.00              0.19            614.50
Individual...................................................         611,200.00              1.96      1,199,200.00              0.25        304,400.00
                                                              ------------------------------------------------------------------------------------------
    Total Estimated Reporting Burden.........................         636,478.00              3.60      2,293,163.24              0.17        389,170.72
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Recordkeeping
--------------------------------------------------------------------------------------------------------------------------------------------------------
State, Local, and Tribal Governments.........................          20,866.00             24.22        505,305.46              0.07         37,129.57
Private for Profit...........................................           2,812               367.99      1,034,786.00              0.06         62,790.72
Private Not for Profit.......................................           1,600                29.19         46,697.00             14.44        674,358.04
Individual...................................................               0                 0.00              0.00              0.00              0.00
                                                              ------------------------------------------------------------------------------------------
    Total Estimated Recordkeeping Burden.....................          25,278.00             62.77      1,586,788.46              0.49        774,278.33
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Total of Reporting and Recordkeeping
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting....................................................         636,478.00              3.60      2,293,163.24              0.17        389,170.72
Recordkeeping................................................          25,278.00             62.77      1,586,788.46              0.49        774,278.33
    Total....................................................         636,478.00              6.10      3,879,951.70              0.30      1,163,449.05
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: A detailed table is included in the supplemental documents to this rule.

J. Regulatory Impact Analysis

    This rule has been designated as Not Significant by the Office of 
Management and Budget, therefore, no Regulatory Impact Analysis is 
required.

K. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 requires Federal agencies to consult and 
coordinate with Tribes on a government-to-government basis on policies 
that have Tribal implications, including regulations, legislative 
comments or proposed legislation, and

[[Page 63243]]

other policy statements or actions that have substantial direct effects 
on one or more Indian Tribes, on the relationship between the Federal 
Government and Indian Tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian Tribes. On 
February 13, 2013, as part of its regular quarterly Tribal consultation 
schedule, USDA engaged in a consultative session to obtain input by 
Tribal officials, or their designees, and Tribal members concerning the 
effect of this and other rules on the Tribes or Indian Tribal 
governments. In regard to the provisions of this rule, at the 
consultative session a Tribal member requested, and FNS provided, 
clarification regarding the purpose of this rule. No concerns regarding 
the provisions of the rule were expressed.
    We are unaware of any current Tribal laws that could be in conflict 
with the proposed rule.

L. E-Government Act Compliance

    The Department is committed to complying 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.

List of Subjects

7 CFR Part 250

    Disaster assistance, Food assistance programs, Grant programs-
social programs, Reporting and recordkeeping requirements.

7 CFR Part 251

    Food assistance programs, Grant programs-social programs, Reporting 
and recordkeeping requirements, Surplus agricultural commodities.

    Accordingly, 7 CFR parts 250 and 251 are proposed to be amended as 
follows:

PART 250--DONATION OF FOODS FOR USE IN THE UNITED STATES, ITS 
TERRITIORIES AND POSSESSIONS AND AREAS UNDER ITS JURISDICTION

0
1. The authority citation for part 250 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 612c, 612c note, 1431, 1431b, 
1431e, 1431 note, 1446a-1, 1859, 2014, 2025; 15 U.S.C. 713c; 22 
U.S.C. 1922; 42 U.S.C. 1751, 1755, 1758, 1760, 1761, 1762a, 1766, 
3030a, 5179, 5180.

0
2. Revise Subpart A to read as follows:


Subpart A--General Purpose and Administration
Sec.
250.1 Purpose and use of donated foods.
250.2 Definitions.
250.3 Administration at the Federal level.
250.4 Administration at the State level.
250.5 Civil rights.


Sec.  250.1  Purpose and use of donated foods.

    (a) Purpose. The Department purchases foods and donates them to 
State distributing agencies for further distribution and use in food 
assistance programs, or to provide assistance to needy persons, in 
accordance with legislation:
    (1) Authorizing donated food assistance in specific programs (e.g., 
the Richard B. Russell National School Lunch Act for the National 
School Lunch Program (NSLP)); or
    (2) Authorizing the removal of surplus foods from the market or the 
support of food prices (i.e., in accordance with Section 32, Section 
416, and Section 709, as defined in Sec.  250.2).
    (b) Use of donated foods. Donated foods must be used in accordance 
with the requirements of this part and with other Federal regulations 
applicable to specific food assistance programs (e.g., 7 CFR part 251 
includes requirements for the use of donated foods in The Emergency 
Food Assistance Program (TEFAP)). Such use may include activities 
designed to demonstrate or test the effective use of donated foods 
(e.g., in nutrition classes or cooking demonstrations) in any programs. 
However, donated foods may not be:
    (1) Sold or exchanged, or otherwise disposed of, unless approved by 
FNS, or specifically permitted elsewhere in this part or in other 
Federal regulations (e.g., donated foods may be used in meals sold in 
NSLP);
    (2) Used to require recipients to make any payments or perform any 
services in exchange for their receipt, unless approved by FNS, or 
specifically permitted elsewhere in this part or in other Federal 
regulations; or
    (3) Used to solicit voluntary contributions in connection with 
their receipt, except for donated foods provided in the Nutrition 
Services Incentive Program (NSIP).
    (c) Legislative sanctions. In accordance with the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1760) and the Agriculture 
and Consumer Protection Act of 1973 (7 U.S.C. 612c note), any person 
who embezzles, willfully misapplies, steals, or obtains by fraud any 
donated foods (or funds, assets, or property deriving from such donated 
foods) will be subject to Federal criminal prosecution and other 
penalties. Any person who receives, conceals, or retains such donated 
foods or funds, assets, or property deriving from such foods, with the 
knowledge that they were embezzled, willfully misapplied, stolen, or 
obtained by fraud, will also be subject to Federal criminal prosecution 
and other penalties. The distributing agency, or other parties, as 
applicable, must immediately notify FNS of any such violations.


Sec.  250.2  Definitions.

    7 CFR Part 3016 means the Department's regulations establishing 
uniform administrative requirements for Federal grants and cooperative 
agreements and subawards to State, local, and Indian Tribal 
governments.
    7 CFR Part 3019 means the Department's regulations establishing 
uniform administrative requirements for Federal grants and cooperative 
agreements awarded to institutions of higher education, hospitals, and 
other nonprofit organizations.
    7 CFR Part 3052 means the Department's regulations establishing 
audit requirements for State and local governments and nonprofit 
organizations that receive Federal grants.
    Administering agency means a State agency that has been approved by 
the Department to administer a food assistance program. If such agency 
is also responsible for the distribution of donated foods, it is 
referred to as the distributing agency in this part.
    Adult care institution means a nonresidential adult day care center 
that participates independently in CACFP, or that participates as a 
sponsoring organization, and that may receive donated foods or cash-in-
lieu of donated foods, in accordance with an agreement with the 
distributing agency.
    AoA means the Administration on Aging, which is the DHHS agency 
that administers NSIP.
    Bonus foods means Section 32, Section 416, and Section 709 donated 
foods, as defined in this section, which are purchased under surplus 
removal or price support authority, and provided to distributing 
agencies in addition to legislatively authorized levels of assistance.
    CACFP means the Child and Adult Care Food Program.
    Carrier means a commercial enterprise that transports donated foods 
from one location to another, but does not store such foods.
    Charitable institutions means public institutions or private 
nonprofit organizations that provide a meal

[[Page 63244]]

service on a regular basis to predominantly needy persons in the same 
place without marked changes. Some types of charitable institutions are 
included in Sec.  250.67.
    Child care institution means a nonresidential child care center 
that participates independently in CACFP, or that participates as a 
sponsoring organization, in accordance with an agreement with the 
distributing agency.
    Child nutrition program means NSLP, CACFP, SFSP, or SBP.
    Commodity offer value means the minimum value of donated foods that 
the distributing agency must offer to a school food authority 
participating in NSLP each school year. The commodity offer value is 
equal to the national per-meal value of donated food assistance 
multiplied by the number of reimbursable lunches served by the school 
food authority in the previous school year.
    Commodity school means a school that operates a nonprofit food 
service, in accordance with 7 CFR part 210, but that receives 
additional donated food assistance rather than the cash assistance 
available to it under Section 4 of the Richard B. Russell National 
School Lunch Act (42 U.S.C. 1753).
    Consignee means an entity (e.g., the distributing or recipient 
agency, a commercial storage facility, or a processor) that receives a 
shipment of donated foods from a vendor or Federal storage facility.
    Contract value of the donated foods means the price assigned by the 
Department to a donated food which shall reflect the Department's 
current acquisition price, transportation and, if applicable, 
processing costs related to the food.
    Contracting agency means the distributing agency, subdistributing 
agency, or recipient agency which enters into a processing contract.
    CSFP means the Commodity Supplemental Food Program.
    Department means the United States Department of Agriculture 
(USDA).
    DHHS means the United States Department of Health and Human 
Services.
    Disaster means a Presidentially declared disaster or emergency, in 
accordance with the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, in which Federal assistance, including donated food 
assistance, may be provided to persons in need of such assistance as a 
result of the disaster or emergency.
    Disaster organization means an organization authorized by FNS or a 
distributing agency, when appropriate, to provide assistance to 
survivors of a disaster or a situation of distress.
    Distributing agency means a State agency selected by the Governor 
of the State or the State legislature to distribute donated foods in 
the State, in accordance with an agreement with FNS, and with the 
requirements in this part and other Federal regulations, as applicable 
(e.g., a State agency distributing donated foods in CSFP must comply 
with requirements in 7 CFR part 247). Indian Tribal Organizations may 
act as a distributing agency in the distribution of donated foods on, 
or near, Indian reservations, as provided for in applicable Federal 
regulations (e.g., 7 CFR parts 253 or 254 for FDPIR).
    Distribution charge means the cumulative charge imposed by 
distributing agencies on school food authorities to help meet the costs 
of storing and distributing donated foods, and administrative costs 
related to such activities.
    Distributor means a commercial food purveyor or handler who is 
independent of a processor and both sells and bills for the end 
products delivered to recipient agencies.
    Donated foods means foods purchased by USDA for donation in food 
assistance programs, or for donation to entities assisting needy 
persons, in accordance with legislation authorizing such purchase and 
donation. Donated foods are also referred to as USDA Foods.
    Elderly nutrition project means a recipient agency selected by the 
State or Area Agency on Aging to receive assistance in NSIP, which may 
include donated food assistance.
    End product means a food product that contains processed donated 
foods.
    Entitlement means the value of donated foods a distributing agency 
is authorized to receive in a specific program, in accordance with 
program legislation.
    Entitlement foods means donated foods that USDA purchases and 
provides in accordance with levels of assistance mandated by program 
legislation.
    FDPIR means the Food Distribution Program on Indian Reservations 
and the Food Distribution Program for Indian Households in Oklahoma.
    Federal acceptance service means the acceptance service provided 
by:
    (1) The applicable grading branches of the Department's 
Agricultural Marketing Service (AMS);
    (2) The Department's Federal Grain Inspection Service; and
    (3) The National Marine Fisheries Service of the U.S. Department of 
Commerce.
    Fee-for-service means the price by pound or case representing a 
processor's cost of ingredients (other than donated foods), labor, 
packaging, overhead, and other costs incurred in the conversion of the 
donated food into the specified end product.
    Fiscal year means the period of 12 months beginning October 1 of 
any calendar year and ending September 30 of the following calendar 
year.
    FNS means the Food and Nutrition Service of the Department of 
Agriculture.
    Food recall means an action to remove food products from commerce 
when there is reason to believe the products may be unsafe, 
adulterated, or mislabeled. The action is taken to protect the public 
from products that may cause health problems or possible death.
    Food service management company means a commercial enterprise, 
nonprofit organization, or public institution that is, or may be, 
contracted with by a recipient agency to manage any aspect of a 
recipient agency's food service, in accordance with 7 CFR parts 210, 
225, or 226, or, with respect to charitable institutions, in accordance 
with this part. To the extent that such management includes the use of 
donated foods, the food service management company is subject to the 
applicable requirements in this part. However, a school food authority 
participating in NSLP that performs such functions is not considered a 
food service management company. Also, a commercial enterprise that 
uses donated foods to prepare meals at a commercial facility, or to 
perform other activities that meet the definition of processing in this 
section, is considered a processor in this part, and is subject to the 
requirements in subpart C, and not subpart D, of this part.
    Household means any of the following individuals or groups of 
individuals, exclusive of boarders or residents of an institution:
    (1) An individual living alone;
    (2) An individual living with others, but customarily purchasing 
food and preparing meals for home consumption separate and apart from 
the others;
    (3) A group of individuals living together who customarily purchase 
and prepare meals in common for home consumption; and
    (4) Other individuals or groups of individuals, as provided in FNS 
regulations specific to particular food assistance programs.

[[Page 63245]]

    Household programs means CSFP, FDPIR, and TEFAP.
    In-kind replacement means the replacement of a loss of donated food 
with the same type of food of U.S. origin, of equal or better quality 
as the donated food, and at least equal in value to the lost donated 
food.
    In-State processor means a processor that has entered into 
agreements with distributing or recipient agencies that are located 
only in the State in which all of the processor's processing facilities 
are located.
    Multi-food shipment means a shipment from a Federal storage 
facility that usually includes more than one type of donated food.
    Multi-State processor means a processor that has entered into 
agreements with distributing or recipient agencies in more than one 
State, or that has entered into one or more agreements with 
distributing or recipient agencies that are located in a State other 
than the State in which the processor's processing facilities or 
business office is located.
    National per-meal value means the value of donated foods provided 
for each reimbursable lunch served in NSLP in the previous school year, 
and for each reimbursable lunch and supper served in CACFP in the 
previous school year, as established in section 6(c) of the Richard B. 
Russell National School Lunch Act (42 U.S.C. 1755(c)).
    Needy persons means persons in need of food assistance as a result 
of their:
    (1) Economic status;
    (2) Eligibility for a specific food assistance program; or
    (3) Eligibility as survivors of a disaster or a situation of 
distress.
    Nonprofit organization means a private organization with tax-exempt 
status under the Internal Revenue Code. Nonprofit organizations 
operated exclusively for religious purposes are automatically tax-
exempt under the Internal Revenue Code.
    Nonprofit school food service means all food service operations 
conducted by the school food authority principally for the benefit of 
schoolchildren, all of the revenue from which is used solely for the 
operation or improvement of such food services.
    NSIP means the Nutrition Services Incentive Program.
    NSLP means the National School Lunch Program.
    Out-of-condition donated foods means donated foods that are no 
longer fit for human consumption as a result of spoilage, 
contamination, infestation, adulteration, or damage.
    Performance supply and surety bond means a written instrument 
issued by a surety company which guarantees performance and supply of 
end products by a processor under the terms of a processing contract.
    Processing means a commercial enterprise's use of a commercial 
facility to:
    (1) Convert donated foods into an end product;
    (2) Repackage donated foods; or
    (3) Use donated foods in the preparation of meals.
    Processor means a commercial enterprise that processes donated 
foods at a commercial facility.
    Recipient agencies means agencies or organizations that receive 
donated foods for distribution to needy persons or for use in meals 
provided to needy persons, in accordance with agreements with a 
distributing or subdistributing agency, or with another recipient 
agency. Local agencies in CSFP, and Indian Tribal Organizations 
distributing donated foods to needy persons through FDPIR in a State in 
which the State government administers FDPIR, are considered recipient 
agencies in this part.
    Recipients means persons receiving donated foods, or a meal 
containing donated foods, provided by recipient agencies.
    Reimbursable meals means meals that meet the nutritional standards 
established in Federal regulations pertaining to NSLP, SFSP, or CACFP, 
and that are served to eligible recipients.
    SAE funds means Federal funds provided to State agencies for State 
administrative expenses, in accordance with 7 CFR part 235.
    SBP means the School Breakfast Program.
    School food authority means the governing body responsible for the 
administration of one or more schools, and that has the legal authority 
to operate NSLP or be otherwise approved by FNS to operate NSLP.
    School year means the period of 12 months beginning July 1 of any 
calendar year and ending June 30 of the following calendar year.
    Section 4(a) means section 4(a) of the Agriculture and Consumer 
Protection Act of 1973, as amended (7 U.S.C. 612c note), which 
authorizes the Department to purchase donated foods to maintain the 
traditional level of assistance for food assistance programs authorized 
by law, including, but not limited to, CSFP, FDPIR, and disaster 
assistance.
    Section 6 means section 6 of the Richard B. Russell National School 
Lunch Act, as amended (42 U.S.C. 1755), which authorizes the Department 
to provide a specified value of donated food assistance in NSLP.
    Section 14 means section 14 of the Richard B. Russell National 
School Lunch Act, as amended (42 U.S.C. 1762a), which authorizes the 
Department to use Section 32 or Section 416 funds to maintain the 
annually programmed levels of donated food assistance in child 
nutrition programs.
    Section 27 means section 27 of the Food and Nutrition Act of 2008, 
as amended (7 U.S.C. 2036), which authorizes the purchase of donated 
foods for distribution in TEFAP.
    Section 32 means section 32 of Public Law 74-320, as amended (7 
U.S.C. 612c), which authorizes the Department to purchase primarily 
perishable foods to remove market surpluses, and to donate them for use 
in domestic food assistance programs or by charitable institutions.
    Section 311 means section 311 of the Older Americans Act of 1965, 
as amended (42 U.S.C. 3030a), which permits State Agencies on Aging to 
receive all or part of their NSIP grant as USDA donated foods.
    Section 416 means section 416 of the Agricultural Act of 1949, as 
amended (7 U.S.C. 1431), which authorizes the Department to purchase 
nonperishable foods to support market prices, and to donate them for 
use in domestic food assistance programs or by charitable institutions.
    Section 709 means section 709 of the Food and Agricultural Act of 
1965, as amended (7 U.S.C. 1446a-1), which authorizes the Department to 
purchase dairy products to meet authorized levels of assistance in 
domestic food assistance programs when such assistance cannot be met by 
Section 416 food purchases.
    Service institution means recipient agencies that participate in 
SFSP.
    SFSP means the Summer Food Service Program.
    Similar replacement means the replacement of a loss of donated food 
with another type of food from the same food category (i.e., dairy, 
grain, meat/meat alternate, vegetable, fruit, etc.) that is of U.S. 
origin, of equal or better quality than that type of donated food, and 
at least equal in value to the lost donated food.
    Single inventory management means the commingling in storage of 
donated foods and foods from other sources, and the maintenance of a 
single inventory record of such commingled foods.
    Situation of distress means a natural catastrophe or other event 
that does not meet the definition of disaster in this section, but 
that, in the determination of the distributing agency, or of FNS, as 
applicable, warrants the use of donated foods to assist survivors of 
such catastrophe or other event. A situation

[[Page 63246]]

of distress may include, for example, a hurricane, flood, snowstorm, or 
explosion.
    SNAP means the Supplemental Nutrition Assistance Program.
    Split shipment means a shipment of donated foods from a vendor that 
is split between two or more distributing or recipient agencies, and 
that usually includes more than one stop-off or delivery location.
    State means any State of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, Guam, and American Samoa.
    State Agency on Aging means:
    (1) The State agency that has been approved by DHHS to administer 
NSIP; or
    (2) The Indian Tribal Organization that has been approved by DHHS 
to administer NSIP.
    Storage facility means a publicly-owned or nonprofit facility or a 
commercial enterprise that stores donated foods or end products, and 
that may also transport such foods to another location.
    Subdistributing agency means a State agency, a public agency, or a 
nonprofit organization selected by the distributing agency to perform 
one or more activities required of the distributing agency in this 
part, in accordance with a written agreement between the parties. A 
subdistributing agency may also be a recipient agency.
    Substitution means:
    (1) The replacement of donated foods with like quantities of 
domestically produced commercial foods of the same generic identity and 
of equal or better quality (i.e., cheddar cheese for cheddar cheese, 
nonfat dry milk for nonfat dry milk, etc.).
    (2) In the case of donated nonfat dry milk, substitution as defined 
under paragraph (1) of this definition or replacement with an 
equivalent amount, based on milk solids content, of domestically 
produced concentrated skim milk.
    (3) A processor can substitute commercial product for donated 
commodity, as described in paragraph (1) of this definition, without 
restrictions under full substitution. The processor must return to the 
contracting agency, in finished end products, the same number of pounds 
of commodity that the processor originally received for processing 
under full substitution. This is the 100-percent yield requirement.
    (4) A processor can substitute commercial product for donated 
commodity product, as described in paragraph (1) of this definition, 
with some restrictions under limited substitution. Restrictions 
include, but are not limited to, the prohibition against substituting 
for backhauled poultry commodity product. FNS may also prohibit 
substitution of certain types of the same generic commodity. (For 
example, FNS may decide to permit substitution for bulk chicken but not 
for canned chicken.)
    Summer camp means a nonprofit or public camp for children aged 18 
and under.
    TEFAP means The Emergency Food Assistance Program.
    USDA Foods means donated foods.
    Vendor means a commercial food company from which the Department 
purchases foods for donation.


Sec.  250.3  Administration at the Federal level.

    (a) Food and Nutrition Service. Within the Department, the Food and 
Nutrition Service (FNS) shall act on behalf of the Department to 
administer the distribution of donated foods to distributing agencies 
for further distribution and use at the State level, in accordance with 
the requirements of this part.
    (b) Audits or inspections. The Department, the Comptroller General 
of the United States, or any of their authorized representatives, may 
conduct audits or inspections of distributing, subdistributing, or 
recipient agencies, or the commercial enterprises with which they have 
contracts or agreements, in order to determine compliance with the 
requirements of this part, or with other applicable Federal 
regulations.
    (c) Suspension or termination. Whenever it is determined that a 
distributing agency has materially failed to comply with the provisions 
of this part, or with other applicable Federal regulations, FNS may 
suspend or terminate the distribution of donated foods, or the 
provision of administrative funds, to the distributing agency. FNS must 
provide written notification of such suspension or termination of 
assistance, including the reasons for the action and the effective 
date. The distributing agency may appeal a suspension or termination of 
assistance if such appeal is provided for in Federal regulations 
applicable to a specific food assistance program (e.g., as provided for 
in Sec.  253.5(l) for FDPIR). FNS may also take other actions, as 
appropriate, including prosecution under applicable Federal statutes.


Sec.  250.4  Administration at the State level.

    (a) Distributing agency. The distributing agency, as defined in 
Sec.  250.2, is responsible for ensuring compliance with the 
requirements in this part, and in other Federal regulations referenced 
in this part, in the distribution and control of donated foods. In 
order to receive, store, and distribute donated foods, the distributing 
agency shall enter into a written agreement with FNS (the Federal-State 
Agreement, form FNS-74) for the distribution of donated foods in 
accordance with the provisions of this part and other applicable 
Federal regulations. The Federal-State agreement is permanent, but may 
be amended with the concurrence of both parties. FNS may terminate the 
Federal-State agreement if the distributing agency fails to meet its 
obligations, in accordance with Sec.  250.3(c). The distributing agency 
may impose additional requirements relating to the distribution and 
control of donated foods in the State, as long as such requirements are 
not inconsistent with the requirements in this part or other Federal 
regulations referenced in this part.
    (b) Subdistributing agency. The distributing agency may enter into 
a written agreement with a subdistributing agency, as defined in Sec.  
250.2, to perform specific activities required of the distributing 
agency in this part. However, the distributing agency may not assign 
its overall responsibility for donated food distribution and control to 
a subdistributing agency or to any other organization, and may not 
delegate its responsibility to ensure compliance with the performance 
standards in Sec.  250.22. The agreement entered into with the 
subdistributing agency must include the provisions in paragraph (c) of 
this section, and must indicate the specific activities for which the 
subdistributing agency is responsible.
    (c) Recipient agencies. The distributing agency must select 
recipient agencies, as defined in Sec.  250.2, to receive donated foods 
for distribution to needy persons, or for use in meals provided to 
needy persons, in accordance with eligibility criteria for specific 
programs or outlets, and must enter into a written agreement with a 
recipient agency prior to distribution of donated foods to it. However, 
for child nutrition programs, the distributing agency must enter into 
agreements with those recipient agencies selected by the State 
administering agency to participate in such programs, prior to 
distribution of donated foods to such recipient agencies. The 
distributing agency must confirm such recipient agencies' approval for 
participation in the appropriate child nutrition program with the State 
administering agency. For household programs, distributing agencies 
must consider the past performance of recipient agencies when

[[Page 63247]]

approving applications for participation. Agreements with recipient 
agencies must include the provisions in this paragraph (c), as well as 
provisions required in Federal regulations applicable to specific 
programs (e.g., agreements with local agencies in CSFP must include the 
provisions in Sec.  247.4(b)). The agreements with recipient agencies 
and subdistributing agencies must:
    (1) Ensure compliance with the applicable requirements in this 
part, with other Federal regulations referenced in this part, and with 
the distributing agency's written agreement with FNS;
    (2) Ensure compliance with all requirements relating to food safety 
and food recalls;
    (3) Establish the duration of the agreement;
    (4) Permit termination of the agreement by the distributing agency 
for failure of the recipient agency (or subdistributing agency, as 
applicable) to comply with its provisions or applicable requirements, 
upon written notification to the applicable party; and
    (5) Permit termination of the agreement by either party, upon 
written notification to the other party, at least 60 days prior to the 
effective date of termination.
    (d) Procurement of services of commercial enterprises. The 
distributing agency, or a recipient agency, must ensure compliance with 
Departmental procurement requirements in 7 CFR part 3016 or 3019, as 
applicable, to obtain the services of a commercial enterprise to 
conduct activities relating to donated foods. The distributing agency, 
or a recipient agency, must also ensure compliance with other 
applicable Departmental regulations in such procurements--for example, 
a school food authority must ensure compliance with requirements in 
Sec. Sec.  210.16 and 210.21, and in subpart D of this part, in 
procuring the services of a food service management company.


Sec.  250.5  Civil rights.

    Distributing agencies, subdistributing agencies and recipient 
agencies shall comply with the Department's nondiscrimination 
regulations (7 CFR parts 15, 15a, and 15b) and the FNS civil rights 
instructions to ensure that in the operation of the program no person 
is discriminated against on a protected bases as it applies to each 
program.
0
3. Revise Subpart B to read as follows:

Subpart B--Delivery, Distribution, and Control of Donated Foods
Sec.
250.10 Availability and ordering of donated foods.
250.11 Delivery and receipt of donated food shipments.
250.12 Storage and inventory management at the distributing agency 
level.
250.13 Efficient and cost-effective distribution of donated foods.
250.14 Storage and inventory management at the recipient agency 
level.
250.15 Out-of-condition donated foods, food recalls, and complaints.
250.16 Claims and restitution for donated food losses.
250.17 Use of funds obtained incidental to donated food 
distribution.
250.18 Reporting requirements.
250.19 Recordkeeping requirements.
250.20 Audit requirements.
250.21 Distributing agency reviews.
250.22 Distributing agency performance standards.


Sec.  250.10  Availability and ordering of donated foods.

    (a) Ordering donated foods. The distributing agency must utilize a 
request-driven ordering system in submitting orders for donated foods 
to FNS. As part of such system, the distributing agency must provide 
recipient agencies with the opportunity to submit input, on at least an 
annual basis, in determining the donated foods from the full list that 
are made available to them for ordering. Based on the input received, 
the distributing agency must ensure that the types and forms of donated 
foods that recipient agencies may best utilize are made available to 
them for ordering. The distributing agency must also ensure that 
donated foods are ordered and distributed only in amounts that may be 
utilized efficiently and without waste.
    (b) Provision of information on donated foods. The distributing 
agency must provide recipient agencies, at their request, information 
that will assist them in ordering or utilization of donated foods, 
including:
    (1) The types and quantities of donated foods that they may order;
    (2) Donated food specifications and nutritional value; and
    (3) Procedures for the disposition of donated foods that are out-
of-condition or that are subject to a food recall.


Sec.  250.11  Delivery and receipt of donated food shipments.

    (a) Delivery. The Department arranges for delivery of donated foods 
from the vendor or Federal storage facility to the distributing 
agency's storage facility, or to a processor with which the 
distributing agency has entered into a contract or agreement. The 
Department may also deliver donated foods directly to a recipient 
agency, or to a storage facility or processor with which the recipient 
agency has entered into a contract or agreement, with the approval of 
the distributing agency. In accordance with Sec.  250.2, an entity that 
receives a shipment of donated foods directly from a USDA vendor or a 
Federal storage facility is referred to as the consignee. Consignees 
must provide a delivery address, and other information as required by 
FNS, as well as update this information as necessary, to ensure foods 
are delivered to the correct location.
    (b) Receipt of shipments. The distributing or recipient agency, or 
other consignee, must comply with all applicable Federal requirements 
in receiving shipments of donated foods, including procedures for the 
disposition of any donated foods in a shipment that are out-of-
condition (as this term is defined in Sec.  250.2), or are not in 
accordance with ordered amounts. The distributing or recipient agency, 
or other consignee, must provide notification of the receipt of donated 
food shipments to FNS, through electronic means, and must maintain an 
electronic record of receipt of all donated food shipments.
    (c) Replacement of donated foods. The vendor is responsible for the 
replacement of donated foods that are delivered out-of-condition. Such 
responsibility extends until expiration of the use-by or best-if-used-
by date on the food label, or, if no such date is included on the food 
label, until expiration of the vendor warranty period included in the 
vendor contract with USDA. In all cases, responsibility for replacement 
is contingent on the determination that the foods were out-of-condition 
at the time of delivery. Replacement must be in-kind, unless FNS 
approves similar replacement (the terms in-kind and similar replacement 
are defined in Sec.  250.2). If FNS determines that physical 
replacement of donated foods is not cost-effective or efficient, FNS 
may:
    (1) Approve payment by the vendor to the distributing or recipient 
agency, as appropriate, for the value of the donated foods at time of 
delivery (or at another value determined by FNS); or
    (2) Credit the distributing agency's entitlement, as feasible.
    (d) Payment of costs relating to shipments. The Department is 
responsible for payment of processing, transportation, handling, or 
other costs incurred up to the time of delivery of donated foods to a 
distributing or recipient agency, or other consignee, as the Department 
deems in its best interest. However, the distributing or

[[Page 63248]]

recipient agency, or other consignee, is responsible for payment of any 
delivery charges that accrue as a result of such consignee's failure to 
comply with procedures in FNS instructions--e.g., failure to provide 
for the unloading of a shipment of donated foods within a designated 
time period.
    (e) Transfer of title. Title to donated foods transfers to the 
distributing or recipient agency, as appropriate, upon acceptance of 
the donated foods at the time and place of delivery. Notwithstanding 
transfer of title, distributing and recipient agencies must ensure 
compliance with the requirements of this part in the distribution, 
control, and use of donated foods.


Sec.  250.12  Storage and inventory management at the distributing 
agency level.

    (a) Safe storage and control. The distributing agency (or 
subdistributing agency, as applicable) must provide facilities for the 
storage and control of donated foods that protect against theft, 
spoilage, damage, or other loss. Accordingly, such storage facilities 
must maintain donated foods in sanitary conditions, at the proper 
temperature and humidity, and with adequate air circulation. The 
distributing agency must ensure that storage facilities comply with all 
Federal, State, or local requirements relative to food safety and 
health, as applicable, and obtain all required health inspections.
    (b) Inventory management. The distributing agency must ensure that 
donated foods at all storage facilities used by the distributing agency 
(or by a subdistributing agency) are stored in a manner that permits 
them to be distinguished from other foods, and must ensure that a 
separate inventory record of donated foods is maintained. The 
distributing agency's system of inventory management must ensure that 
donated foods are distributed in a timely manner and in optimal 
condition. On an annual basis, the distributing agency must conduct a 
physical review of donated food inventories at all storage facilities 
used by the distributing agency (or by a subdistributing agency), and 
must reconcile physical and book inventories of donated foods. The 
distributing agency must report donated food losses to FNS, and ensure 
that restitution is made for such losses.
    (c) Inventory limitations. The distributing agency is subject to 
the following limitations in the amount of donated food inventories on-
hand, unless FNS approval is obtained to maintain larger inventories:
    (1) For TEFAP, NSLP and other child nutrition programs, inventories 
may not exceed an amount needed for a six-month period, based on an 
average amount of donated foods utilized in that period; and
    (2) For CSFP and FDPIR, inventories of each category of donated 
food in the food package may not exceed an amount needed for a three-
month period, based on an average amount of donated food that the 
distributing agency can reasonably utilize in that period to meet CSFP 
caseload or FDPIR average participation.
    (d) Inventory protection. The distributing agency must obtain 
insurance to protect the value of donated foods at its storage 
facilities. The amount of such insurance must be at least equal to the 
average monthly value of donated food inventories at such facilities in 
the previous fiscal year. The distributing agency must also ensure that 
the following entities obtain insurance to protect the value of their 
donated food inventories, in the same amount required of the 
distributing agency in this paragraph (d):
    (1) Subdistributing agencies;
    (2) Recipient agencies in household programs that have an agreement 
with the distributing agency or subdistributing agency to store and 
distribute foods; and
    (3) Commercial storage facilities under contract with the 
distributing agency or with an agency identified in paragraph (d)(1) or 
(2) of this section.
    (e) Transfer of donated foods. The distributing agency may transfer 
donated foods from its inventories to another distributing agency, or 
to another program, in order to ensure that such foods may be utilized 
in a timely manner and in optimal condition, in accordance with this 
part. However, the distributing agency must request FNS approval to 
transfer donated foods from one program to another (e.g., from NSLP to 
TEFAP). FNS may also require a distributing agency to transfer donated 
foods at the distributing agency's storage facilities or at a 
processor's facility, if inventories of donated foods are excessive or 
may not be efficiently utilized. If there is a question of food safety, 
or if directed by FNS, the distributing agency must obtain an 
inspection of donated foods by State or local health authorities to 
ensure that the donated foods are still safe and not out-of-condition 
before transferring them. The distributing agency is responsible for 
meeting any transportation or inspection costs incurred, unless it is 
determined by FNS that the transfer is not the result of negligence or 
improper action on the part of the distributing agency. The 
distributing agency must maintain a record of all transfers from its 
inventories, and of any inspections related to such transfers.
    (f) Commercial storage facilities or carriers. The distributing 
agency may obtain the services of a commercial storage facility to 
store and distribute donated foods, or a carrier to transport donated 
foods, but must ensure compliance with Departmental procurement 
requirements in 7 CFR part 3016. The distributing agency must enter 
into a written contract with a commercial storage facility or carrier, 
which may not exceed five years in duration, including any extensions 
or renewals. The contract must include applicable provisions required 
by Federal statutes and executive orders listed in 7 CFR 3016.36(i). 
The contract must also include, as applicable to a storage facility or 
carrier, provisions that:
    (1) Assure storage, management, and transportation of donated foods 
in a manner that properly safeguards them against theft, spoilage, 
damage, or other loss, in accordance with the requirements in this 
part;
    (2) Assure compliance with all Federal, State, or local 
requirements relative to food safety and health, including required 
health inspections, and procedures for responding to a food recall;
    (3) Assure storage of donated foods in a manner that distinguishes 
them from other foods, and assure separate inventory recordkeeping of 
donated foods;
    (4) Assure distribution of donated foods to eligible recipient 
agencies in a timely manner, in optimal condition, and in amounts for 
which such recipient agencies are eligible;
    (5) Include the amount of insurance coverage obtained to protect 
the value of donated foods;
    (6) Permit the performance of on-site reviews of the storage 
facility by the distributing agency, the Comptroller General, the 
Department of Agriculture, or any of its duly authorized 
representatives, in order to determine compliance with requirements in 
this part;
    (7) Establish the duration of the contract, and provide for 
extension or renewal of the contract only upon fulfillment of all 
contract provisions;
    (8) Provide for expeditious termination of the contract for 
noncompliance with its provisions; and
    (9) Provide for termination of the contract by either party for 
other cause, after written notification of such intent

[[Page 63249]]

at least 60 days prior to the effective date of such action.


Sec.  250.13  Efficient and cost-effective distribution of donated 
foods.

    (a) Direct shipments. The distributing agency must ensure that the 
distribution of donated foods is conducted in the most efficient and 
cost-effective manner, and, to the extent practical, in accordance with 
the specific needs and preferences of recipient agencies. In meeting 
this requirement, the distributing agency must, to the extent 
practical, provide for:
    (1) Shipments of donated foods directly from USDA vendors to 
recipient agencies, including two or more recipient agencies acting as 
a collective unit (such as a school co-op), or to the commercial 
storage facilities of such agencies;
    (2) Shipments of donated foods directly from USDA vendors to 
processors for processing of donated foods and sale of end products to 
recipient agencies, in accordance with Subpart C of this part; and
    (3) The use of split shipments, as defined in Sec.  250.2, in 
arranging for delivery of donated foods to recipient agencies that 
cannot accept a full truckload.
    (b) Distributing agency storage and distribution charge. If a 
distributing agency determines that direct shipments of donated foods, 
as described in paragraph (a) of this section, are impractical, it must 
provide for the storage of donated foods at the distributing agency 
level, and subsequent distribution to recipient agencies, in the most 
efficient and cost-effective manner. The distributing agency must use a 
commercial storage facility, in accordance with Sec.  250.12(f), if 
such system is determined to be more efficient and cost-effective. The 
distributing agency must utilize State Administrative Expense (SAE) 
funds, as available, to meet the costs of storing and distributing 
donated foods for school food authorities or other recipient agencies 
in child nutrition programs, and administrative costs related to such 
activities, in accordance with 7 CFR part 235. If SAE funds, or any 
other Federal or State funds received for such purpose, are 
insufficient to fully meet the distributing agency's costs of storing 
and distributing donated foods, and related administrative costs (e.g., 
salaries of employees engaged in such activities), the distributing 
agency may require school food authorities or other recipient agencies 
in child nutrition programs to pay a distribution charge, as defined in 
Sec.  250.2, to help meet such costs. The distribution charge may cover 
only allowable costs, in accordance with 7 CFR part 3016 and with OMB 
guidance. The distributing agency must maintain a record of costs 
incurred in storing and distributing donated foods and related 
administrative costs, and the source of funds used to pay such costs.
    (c) FNS approval of amount of distribution charge. In determining 
the amount of a new distribution charge, or in increasing the amount 
(except for normal inflationary adjustments) or reducing the level of 
service provided once a distribution charge is established, the 
distributing agency must request FNS approval prior to implementation. 
Such requirement also applies to the distribution charge imposed by a 
commercial storage facility under contract with the distributing 
agency. The request for approval must be submitted to FNS at least 90 
days in advance of its projected implementation, and must include 
justification of the newly established amount, or any increased charge 
or reduction in the level of service provided under an established 
distribution charge, and the specific costs covered under the 
distribution charge (e.g., storage, delivery, or administrative costs).
    (d) FNS review authority. FNS may reject the distributing agency's 
proposed new, or changes to an existing, distribution charge if it 
determines that the charge would not provide for distribution of 
donated foods in the most efficient and cost-effective manner, or may 
otherwise impact recipient agencies negatively. In such case, the 
distributing agency would be required to adjust the proposed amount or 
the level of service provided in its distribution charge, or consider 
other distribution options. FNS may also require the distributing 
agency to submit documentation to justify the efficiency and cost-
effectiveness of its storage and distribution system at other times, 
and may require the distributing agency to re-evaluate such system in 
order to ensure compliance with the requirements in this part.


Sec.  250.14  Storage and inventory management at the recipient agency 
level.

    (a) Safe storage and control. Recipient agencies must provide 
facilities for the storage and control of donated foods that protect 
against theft, spoilage, damage, or other loss. Accordingly, such 
storage facilities must maintain donated foods in sanitary conditions, 
at the proper temperature and humidity, and with adequate air 
circulation. Recipient agencies must ensure that storage facilities 
comply with all Federal, State, or local requirements relative to food 
safety and health, as applicable, and obtain all required health 
inspections.
    (b) Inventory management--household programs. Recipient agencies in 
household programs must store donated foods in a manner that permits 
them to be distinguished from other foods in storage, and must maintain 
a separate inventory record of donated foods. Such recipient agencies' 
system of inventory management must ensure that donated foods are 
distributed to recipients in a timely manner that permits use of such 
foods while still in optimal condition. Such recipient agencies must 
notify the distributing agency of donated food losses and take further 
actions with respect to such food losses, as directed by the 
distributing agency.
    (c) Inventory management--child nutrition programs and charitable 
institutions. Recipient agencies in child nutrition programs, and those 
receiving donated foods as charitable institutions, in accordance with 
Sec.  250.67, are not required to store donated foods in a manner that 
distinguishes them from purchased foods or other foods, or to maintain 
a separate inventory record of donated foods--i.e., they may utilize 
single inventory management, as defined in Sec.  250.2. For such 
recipient agencies, donated foods are subject to the same safeguards 
and effective management practices as other foods. Accordingly, 
recipient agencies in child nutrition programs and those receiving 
donated foods as charitable institutions (regardless of the inventory 
management system utilized), are not required to separately monitor and 
report donated food use, distribution, or loss to the distributing 
agency, unless there is evidence indicating that donated food loss has 
occurred as a result of theft or fraud.
    (d) Transfer of donated foods to another recipient agency. A 
recipient agency operating a household program must request approval 
from the distributing agency to transfer donated foods at its storage 
facilities to another recipient agency. The distributing agency may 
approve such transfer to another recipient agency in the same household 
program (e.g., the transfer of TEFAP foods from one food pantry to 
another) without FNS approval. However, the distributing agency must 
receive FNS approval to permit a recipient agency in a household 
program to transfer donated foods to a recipient agency in a different 
program (e.g., the transfer of TEFAP foods from a food pantry to a CSFP 
local agency), even if the same recipient agency administers both 
programs. A recipient

[[Page 63250]]

agency operating a child nutrition program, or receiving donated foods 
as a charitable institution, in accordance with Sec.  250.67, may 
transfer donated foods to another recipient agency or charitable 
organization without approval from the distributing agency or FNS.
    (e) Commercial storage facilities. Recipient agencies may obtain 
the services of commercial storage facilities to store and distribute 
donated foods, but must ensure compliance with Departmental procurement 
requirements in 7 CFR parts 3016 or 3019, as applicable. Recipient 
agencies must ensure that commercial storage facilities comply with all 
of the applicable requirements in this section regarding the storage 
and inventory management of donated foods.


Sec.  250.15  Out-of-condition donated foods, food recalls, and 
complaints.

    (a) Out-of-condition donated foods at the distributing agency 
level. The distributing agency must ensure that donated foods that are 
out-of-condition, as defined in Sec.  250.2, at any of its storage 
facilities are destroyed, or otherwise disposed of, in accordance with 
State or local requirements pertaining to food safety and health. The 
distributing agency must obtain an inspection of donated foods by State 
or local health authorities to determine their safety and condition, as 
necessary, or as directed by FNS. Out-of-condition donated foods may be 
sold (e.g., to a salvage company), if permitted by State or local laws 
or regulations.
    (b) Out-of-condition donated foods at the recipient agency level. 
Recipient agencies in household programs must report out-of-condition 
donated foods at their storage facilities to the distributing agency, 
in accordance with Sec.  250.14(b), and must ensure that such donated 
foods are destroyed, or otherwise disposed of, in accordance with State 
or local requirements pertaining to food safety and health. The 
distributing agency must ensure that such recipient agencies obtain an 
inspection of donated foods by State or local health authorities to 
determine their safety and condition, as necessary, or as directed by 
FNS. For charitable institutions, in accordance with Sec.  250.67, and 
recipient agencies in child nutrition programs, donated foods must be 
treated as other foods when safety is in question. Consequently, such 
recipient agencies must comply with State or local requirements in 
determining the safety of foods (including donated foods), and in their 
destruction or other disposition. However, they are not required to 
report such actions to the distributing agency.
    (c) Food recalls. The distributing or recipient agency, as 
appropriate, must follow all applicable Federal, State or local 
requirements for donated foods subject to a food recall, as this term 
is defined in Sec.  250.2. Further, in the event of a recall, 
Departmental guidance is provided, including procedures or instructions 
for all parties in responding to a food recall, replacement of recalled 
donated foods, and reimbursement of specific costs incurred as a result 
of such actions.
    (d) Complaints relating to donated foods. The distributing agency 
must inform recipient agencies of the preferred method of receiving 
complaints regarding donated foods. Complaints received from 
recipients, recipient agencies, or other entities relating to donated 
foods must be resolved in an expeditious manner, and in accordance with 
applicable requirements in this part. However, the distributing agency 
may not dispose of any donated food that is the subject of a complaint 
prior to guidance and authorization from FNS. Any complaints regarding 
product quality or specifications, or suggested product improvements, 
must be submitted to FNS through the established FNS donated foods 
complaint system for tracking purposes. If complaints may not be 
resolved at the State level, the distributing agency must provide 
information regarding the complaint to FNS. The distributing agency 
must maintain a record of its investigations and other actions with 
respect to complaints relating to donated foods.


Sec.  250.16  Claims and restitution for donated food losses.

    (a) Distributing agency responsibilities. The distributing agency 
must ensure that restitution is made for the loss of donated foods, or 
for the loss or improper use of funds provided for, or obtained as an 
incident of, the distribution of donated foods. The distributing agency 
must identify, and seek restitution from, parties responsible for the 
loss, and implement corrective actions to prevent future losses.
    (b) FNS claim actions. FNS may initiate and pursue claims against 
the distributing agency or other entities for the loss of donated 
foods, or for the loss or improper use of funds provided for, or 
obtained as an incident of, the distribution of donated foods. FNS may 
also initiate and pursue claims against the distributing agency for 
failure to take required claim actions against other parties. FNS may, 
on behalf of the Department, compromise, forgive, suspend, or waive a 
claim. FNS may, at its option, require assignment to it of any claim 
arising from the distribution of donated foods.


Sec.  250.17  Use of funds obtained incidental to donated food 
distribution.

    (a) Distribution charge. The distributing agency must use funds 
obtained from the distribution charge imposed on recipient agencies in 
child nutrition programs, in accordance with Sec.  250.13(b), to meet 
the costs of storing and distributing donated foods or related 
administrative costs, consistent with the limitations on the use of 
funds provided under a Federal grant in 7 CFR part 3016 and OMB 
guidance. The distributing agency must maintain such funds in an 
operating account, separate from other funds obtained incidental to 
donated food distribution. The amount of funds maintained at any time 
in the operating account may not exceed the distributing agency's 
highest expenditure from that account over any three-month period in 
the previous school or fiscal year, unless the distributing agency 
receives FNS approval to maintain a larger amount of funds in such 
account. Unless such approval is granted, funds in excess of the 
established limit must be used to reduce the distribution charge 
imposed on recipient agencies, or to provide appropriate reimbursement 
to such agencies. The distributing agency may not use funds obtained 
from the distribution charge to purchase foods to replace donated food 
losses or to pay claims to make restitution for donated food losses.
    (b) Processing and food service management company contracts. 
School food authorities must use funds obtained from processors in 
processing of donated foods into end products (e.g., through rebates 
for the value of such donated foods), or from food service management 
companies in crediting for the value of donated foods received, in 
support of the nonprofit school food service, in accordance with 7 CFR 
210.14 of this chapter. Other recipient agencies must use such funds in 
accordance with the requirements in paragraph (c) of this section.
    (c) Claims and other sources. The distributing agency must ensure 
that funds collected in payment of claims for donated food losses are 
used only for the payment of expenses of the food distribution program. 
The first priority for the use of funds collected in a claim for the 
loss of donated foods is the purchase of replacement foods for use in 
the program in which the loss occurred. If the purchase of replacement 
foods is not feasible, funds collected in a claim for the loss of 
donated foods must be

[[Page 63251]]

used to pay allowable administrative costs incurred in the storage and 
distribution of donated foods. The distributing agency, or recipient 
agency, must use funds obtained from sources incidental to donated food 
distribution (except as otherwise indicated in this section) to pay 
administrative costs incurred in the storage and distribution of 
donated foods, consistent with the limitations on the use of funds 
provided under a Federal grant in 7 CFR parts 3016 or 3019, and OMB 
guidance, as applicable. The distributing agency must maintain funds 
obtained from claims and other sources included in this paragraph (c) 
in a donated food account (separate from the operating account 
maintained in accordance with paragraph (a) of this section), and must 
obtain FNS approval for any single deposit into, or expenditure from, 
such account in excess of $25,000. Distributing and recipient agencies 
must maintain records of funds obtained and expended in accordance with 
this paragraph (c). Examples of funds applicable to the provisions in 
this paragraph (c) include funds accrued from:
    (1) The salvage of out-of-condition donated foods.
    (2) The sale of donated food containers, pallets, or packing 
materials.
    (3) Payments by processors for failure to meet processing yields or 
other cause.
    (d) Prohibitions. The distributing agency may not use funds 
obtained incidental to donated food distribution to meet State matching 
requirements for Federal administrative funds provided in household 
programs, or in place of State Administrative Expense (SAE) funds 
provided in accordance with 7 CFR part 235.
    (e) Buy American. When funds obtained in accordance with this 
section are used to purchase foods in the commercial market, a 
distributing or recipient agency in the continental United States, and 
in Hawaii, must, to the maximum extent practical, purchase only 
domestic foods or food products. Such requirement is also applicable to 
food purchases made with the cash-in-lieu-of-donated foods provided in 
NSLP and CACFP, in accordance with Sec. Sec.  250.56(e) and 250.61(c). 
For the purposes of this section, domestic foods or food products are:
    (1) Agricultural commodities that are produced in the United 
States; or
    (2) Food products that are processed in the United States 
substantially using agricultural commodities that are produced in the 
United States.


Sec.  250.18  Reporting requirements.

    (a) Inventory and distribution of donated foods. The distributing 
agency must submit to FNS reports relating to the inventory and 
distribution of donated foods in this paragraph (a) or in other 
regulations applicable to specific programs. Such reports must be 
submitted in accordance with the time frames established for each 
respective form. For donated foods received in FDPIR, the distributing 
agency must submit form FNS-152, Monthly Distribution of Donated Foods 
to Family Units. For donated foods received in TEFAP, NSLP, or other 
child nutrition programs, the distributing agency must submit form FNS-
155, the Inventory Management Register.
    (b) Processor performance reports. Processors must submit monthly 
performance reports to the distributing agency, in accordance with 
Sec.  250.30(m). Such reports must include the information listed in 
Sec.  250.30(m).
    (c) Disasters and situations of distress. The distributing agency 
must submit to FNS a report of the types and amounts of donated foods 
used from distributing or recipient agency storage facilities in 
disasters and situations of distress, and a request for replacement of 
such foods, using electronic form FNS-292A, Report of Commodity 
Distribution for Disaster Relief, in accordance with Sec. Sec.  250.69 
and 250.70. The report must be submitted within 45 days of the 
termination of such assistance.
    (d) Other information. The distributing agency must submit other 
information, as requested by FNS, in order to ensure compliance with 
requirements in this part. For example, FNS may require the 
distributing agency to submit information with respect to its 
assessment of the distribution charge, or to justify the efficiency and 
cost-effectiveness of its distribution system, in accordance with Sec.  
250.13(c) and (d).


Sec.  250.19  Recordkeeping requirements.

    (a) Required records. Distributing agencies, recipient agencies, 
and other entities must maintain records of agreements and contracts, 
reports, audits, and claim actions, funds obtained as an incident of 
donated food distribution, and other records specifically required in 
this part or in other Departmental regulations, as applicable. In 
addition, distributing agencies must keep a record of the value of 
donated foods each of its school food authorities receives, and records 
to demonstrate compliance with the professional standards for 
distributing agency directors established in 235.11(g). Processors must 
also maintain records documenting the sale of end products to recipient 
agencies, including the sale of such end products by distributors. 
Specific recordkeeping requirements relating to the use of donated 
foods in contracts with food service management companies are included 
in Sec.  250.54. Failure of the distributing agency, recipient agency, 
or other entity to comply with recordkeeping requirements shall be 
considered prima facie evidence of improper distribution or loss of 
donated foods and may result in a claim against such party for the loss 
or misuse of donated foods, in accordance with Sec.  250.16, or in 
other sanctions or corrective actions.
    (b) Retention of records. Records relating to requirements for 
donated foods must be retained for a period of three years from the 
close of the fiscal or school year to which they pertain. However, 
records pertaining to claims or audits that remain unresolved in this 
period of time must be retained until such actions have been resolved.


Sec.  250.20  Audit requirements.

    (a) Requirements for distributing and recipient agencies. Audit 
requirements for State or local government agencies and nonprofit 
organizations that receive Federal awards or grants (including 
distributing and recipient agencies under this part) are included in 
Departmental regulations in 7 CFR part 3052 (which codifies audit 
requirements in OMB Circular A-133). In accordance with such 
regulations, the value of Federal grants or awards expended in a fiscal 
year determine if the distributing or recipient agency is required to 
obtain an audit in that year. The value of donated foods must be 
considered as part of the Federal grants or awards in determining if an 
audit is required. FNS provides guidance for distributing and recipient 
agencies in valuing donated foods for audit purposes, and in 
determining whether an audit must be obtained. (For availability of the 
OMB circular mentioned in this paragraph, please refer to 5 CFR 
1310.3).
    (b) Requirements for processors. In-State processors must obtain an 
independent certified public accountant (CPA) audit in the first year 
that they receive donated foods for processing, while multi-State 
processors must obtain such an audit in each of the first two years 
that they receive donated foods for processing. After this initial 
requirement period, in-State and multi-State processors must obtain an 
independent CPA audit at a frequency determined by the average value of 
donated foods received for processing per year, as indicated in this 
paragraph (b). The value of donated foods used in

[[Page 63252]]

determining if an audit is required must be the contract value of the 
donated foods, as defined in Sec.  250.2. The audit must determine that 
the processor's performance is in compliance with the requirements in 
this part, and must be conducted in accordance with procedures in the 
FNS Audit Guide for Processors. All processors must pay for audits 
required in this paragraph (b). An in-State or multi-State processor 
must obtain an audit:
    (1) Annually, if it receives, on average, more than $5,000,000 in 
donated foods for processing per year;
    (2) Every two years, if it receives, on average, between $1,000,000 
and $5,000,000 in donated foods for processing per year; or
    (3) Every three years, if it receives, on average, less than 
$1,000,000 in donated foods for processing per year.
    (c) Post-audit actions required of processors. In-State processors 
must submit a copy of the audit to the distributing agency for review 
by December 31st of each year in which an audit is required. The 
distributing agency must ensure that in-State processors provide a 
corrective action plan with timelines for correcting deficiencies 
identified in the audit, and must ensure that such deficiencies are 
corrected. Multi-State processors must submit a copy of the audit, and 
a corrective action plan with timelines for correcting deficiencies 
identified in the audit, as appropriate, to FNS for review by December 
31st of each year in which an audit is required. FNS may conduct an 
audit or investigation of a processor to ensure correction of 
deficiencies, in accordance with Sec.  250.3(b).
    (d) Failure to meet audit requirements. If a distributing agency or 
recipient agency fails to obtain the required audit, or fails to 
correct deficiencies identified in the audit, FNS may withhold, 
suspend, or terminate the Federal award. If a processor fails to obtain 
the required audit, or fails to correct deficiencies identified in the 
audit, a distributing or recipient agency may terminate the processing 
agreement, and may not extend or renew such an agreement. Additionally, 
FNS may prohibit the further distribution of donated foods to such 
processor.


Sec.  250.21  Distributing agency reviews.

    (a) Scope of review requirements. The distributing agency must 
ensure that subdistributing agencies, recipient agencies, and other 
entities comply with applicable requirements in this part, and in other 
Federal regulations, through the on-site reviews required in paragraph 
(b) of this section, and the review of required reports or audits. 
However, the distributing agency is not responsible for the review of 
school food authorities and other recipient agencies in child nutrition 
programs. The State administering agency is responsible for the review 
of such recipient agencies, in accordance with review requirements of 
part 210.
    (b) On-site reviews. The distributing agency must conduct an on-
site review of:
    (1) Charitable institutions, whenever the distributing agency 
identifies actual or probable deficiencies in the use of donated foods 
by such institutions, through audits, investigations, complaints, or 
any other information;
    (2) Storage facilities at the distributing agency level (including 
commercial storage facilities under contract with the distributing or 
subdistributing agency), on an annual basis; and
    (3) Subdistributing and recipient agencies in CSFP, TEFAP, and 
FDPIR, in accordance with 7 CFR parts 247, 251, and 253, respectively.
    (c) Identification and correction of deficiencies. The distributing 
agency must inform each subdistributing agency, recipient agency, or 
other entity of any deficiencies identified in its reviews, and 
recommend specific actions to correct such deficiencies. The 
distributing agency must ensure that such agencies or entities 
implement corrective actions to correct deficiencies in a timely 
manner.


Sec.  250.22  Distributing agency performance standards.

    (a) Performance standards. The distributing agency must meet the 
basic performance standards included in this paragraph in the ordering, 
distribution, processing, if applicable, and control of donated foods. 
Some of the performance standards apply only to distributing agencies 
that distribute donated foods in NSLP or other child nutrition 
programs, as indicated. However, the identification of specific 
performance standards does not diminish the responsibility of the 
distributing agency to meet other requirements in this part. In meeting 
basic performance standards, the distributing agency must:
    (1) Provide recipient agencies with information on donated food 
availability, assistance levels, values, product specifications, and 
processing options, as requested;
    (2) Implement a request-driven ordering system, in accordance with 
Sec.  250.10(a), and, for child nutrition programs, Sec.  250.58(a);
    (3) Offer school food authorities in NSLP, at a minimum, the 
commodity offer value of donated foods, in accordance with Sec.  
250.58;
    (4) Provide for the storage, distribution, and control of donated 
foods in accordance with all Federal, State, or local requirements 
relating to food safety and health;
    (5) Provide for the distribution of donated foods in the most 
efficient and cost-effective manner, including, to the extent 
practical, direct shipments from vendors to recipient agencies or 
processors, and the use of split shipments;
    (6) Use SAE funds, or other Federal or State funds, as available, 
in paying State storage and distribution costs for child nutrition 
programs, and impose a distribution charge on recipient agencies in 
child nutrition programs only to extent that such funds are 
insufficient to meet applicable costs;
    (7) Provide for the processing of donated foods, at the request of 
school food authorities, in accordance with Subpart C of this part, 
including the testing of end products with school food authorities, and 
the solicitation of acceptability input, when procuring end products on 
behalf of school food authorities or otherwise limiting the procurement 
of end products; and
    (8) Provide recipient agencies information regarding the preferred 
method for submission of donated foods complaints to the distributing 
agency and act expeditiously to resolve submitted complaints.
    (b) Corrective action plan. The distributing agency must submit a 
corrective action plan to FNS whenever it is found to be substantially 
out of compliance with the performance standards in paragraph (a) of 
this section, or with other requirements in this part. The plan must 
identify the corrective actions to be taken, and the timeframe for 
completion of such actions. The plan must be submitted to FNS within 60 
days after the distributing agency receives notification from FNS of a 
deficiency.
    (c) Termination or suspension. FNS may terminate or suspend all, or 
part, of the distributing agency's participation in the distribution of 
donated foods, or in a food distribution program, for failure to comply 
with requirements in this part, with other applicable Federal 
regulations, or with its written agreement with FNS. FNS may also take 
other actions, as appropriate, including prosecution under applicable 
Federal statutes.

Subpart C--Processing and Labeling of Donated Foods

0
4. In Subpart C, Sec.  250.30:

[[Page 63253]]

0
a. Revise all references to ``FNSRO'' to read ``FNS Regional Office''.
0
b. Amend paragraph (b)(2) introductory text by removing the reference, 
``Sec.  250.12(b)'', and adding in its place the reference, ``Sec.  
250.4(c)''.
0
c. Amend paragraph (b)(2)(i) by removing the words, ``as defined in 
Sec.  250.3'', and adding in their place the words, ``in accordance 
with paragraph (d) of this section''.
0
d. Amend paragraph (c) as follows:
0
i. Redesignate paragraphs (c)(1)(i) through (vi) as paragraphs 
(c)(1)(i)(A) through (F).
0
ii. Redesignate paragraph (c)(1) introductory text as (c)(1)(i) 
introductory text.
0
iii. Designate the undesignated paragraph following paragraph 
(c)(1)(i)(F), beginning with the words ``These criteria will be 
reviewed'', as paragraph (c)(1)(ii).
0
e. Amend newly designated paragraph (c)(1)(ii) by removing the 
references, ``Attachment O to OMB Circular A-102'' and ``Attachment O 
of OMB Circular A-102'', and adding in their place the reference, ``7 
CFR parts 3016 or 3019, as applicable''.
0
f. Amend paragraph (c)(4)(iii) by removing the reference, ``Sec.  
250.3'', and adding in its place the reference, ``Sec.  250.2''.
0
g. Revise paragraphs (c)(4)(viii)(G) and (c)(4)(xi).
0
h. Remove paragraph (c)(4)(xiv), and redesignate paragraphs (c)(4)(xv) 
through (xviii) as paragraphs (c)(4)(xiv) through (xvii).
0
i. Revise paragraph (d)(1)(i).
0
j. Remove the second and third sentences of paragraph (d)(1)(iii).
0
k. Revise paragraph (e)(1)(i).
0
l. Amend paragraph (f)(1) introductory text by removing the reference, 
``Sec.  250.3'', and adding in its place the reference, ``Sec.  
250.2''.
0
m. Amend paragraph (f)(2) by removing the reference, ``Sec.  250.16'', 
and adding in its place the reference, ``Sec.  250.19''.
0
n. Amend paragraph (f)(3)(vii) by removing the reference, ``Sec.  
250.16(a)(4)'', and adding in its place the reference, ``Sec.  
250.19(a)''.
0
o. Amend paragraph (j)(3) by removing the reference, ``FNS Instruction 
410-1, Non-Audit Claims, Food Distribution Program'', and adding in its 
place the reference, ``Sec.  250.17(c)''.
0
p. Remove the last sentence of paragraph (k)(3).
0
q. Remove paragraphs (m)(1)(vii) and (viii), and redesignate paragraph 
(m)(1)(ix) as paragraph (m)(1)(vii).
0
r. Revise the second sentence of paragraph (n)(3).
0
s. Remove paragraph (n)(4), and redesignate paragraph (n)(5) as 
paragraph (n)(4).
0
t. Remove paragraphs (o), (q), and (r), and redesignate paragraphs (p), 
(s), and (t) as paragraphs (o), (p), and (q), respectively.
    The revisions read as follows:


Sec.  250.30  State processing of donated foods.

* * * * *
    (c) * * *
    (4) * * *
    (viii) * * *
    (G) Meet the requirements of Sec.  250.19 in maintaining records 
pertaining to the receipt, distribution, and control of donated foods, 
and the sale of end products;
* * * * *
    (xi) Meet the requirements in Sec.  250.20(b) and (c) in obtaining 
an independent certified public accountant audit, and in performing 
post-audit actions;
* * * * *
    (d) * * *
    (1) * * *
    (i) A refund system in which the processor provides a payment to 
the recipient agency in the amount of the contract value of the donated 
food contained in the end product;
* * * * *
    (e) * * *
    (1) * * *
    (i) A refund system in which the processor provides a payment to 
the recipient agency in the amount of the contract value of the donated 
food contained in the end product;
* * * * *
    (n) * * *
    (3) * * * As a part of the annual reconciliation, the distributing 
agency must ensure that a processor with excessive inventories of 
donated foods reduces such inventories. * * *
* * * * *

Subpart D--Donated Foods in Contracts With Food Service Management 
Companies

0
5. In Sec.  250.50, revise the second sentence of paragraph (a) to read 
as follows:


Sec.  250.50  Contract requirements and procurement.

    (a) * * * The contract must ensure that all donated foods received 
for use by the recipient agency in the school or fiscal year, as 
applicable, are used in the recipient agency's food service, or that 
commercially purchased foods are used in place of such donated foods 
only in accordance with the requirements in Sec.  250.51(d). * * *
* * * * *
0
6. In Sec.  250.52, revise paragraph (a) to read as follows:


Sec.  250.52  Storage and inventory management of donated foods.

    (a) General requirements. The food service management company must 
meet the requirements for the safe storage and control of donated foods 
in Sec.  250.14(a).
* * * * *

Subpart E--National School Lunch Program (NSLP) and Other Child 
Nutrition Programs

0
7. In Sec.  250.58, revise paragraphs (a) and (e) to read as follows:


Sec.  250.58  Ordering donated foods and their provision to school food 
authorities.

    (a) Ordering and distribution of donated foods. The distributing 
agency must ensure that school food authorities are able to submit 
donated food orders through the FNS electronic donated foods ordering 
system, or through a comparable electronic food ordering system. The 
distributing agency must ensure that all school food authorities have 
the opportunity to provide input at least annually in determining the 
donated foods from the full list that are made available to them for 
ordering in the FNS electronic donated foods ordering system or other 
comparable electronic ordering system. The distributing agency must 
ensure distribution to school food authorities of all such ordered 
donated foods that may be distributed to them in a cost-effective 
manner (including the use of split shipments, as necessary), and that 
they may utilize efficiently and without waste.
* * * * *
    (e) Donated food value in offer and crediting. In offering the 
school food authority the commodity offer value of donated foods, the 
distributing agency must use either the cost-per-pound donated food 
prices posted annually by USDA or the most recently published cost-per-
pound price in the USDA donated foods catalog. The distributing agency 
must credit the school food authority using the USDA purchase price 
(cost-per-pound), and update the price at least semi-annually to 
reflect the most recent USDA purchase price.
0
8. Revise Sec.  250.59 to read as follows:


Sec.  250.59  Storage, control, and use of donated foods.

    (a) Storage and inventory management. The distributing agency must 
ensure compliance with

[[Page 63254]]

requirements in Sec. Sec.  250.12 and 250.13 in order to ensure the 
safe and effective storage and inventory management of donated foods, 
and their efficient and cost-effective distribution to school food 
authorities. The school food authority must ensure compliance with 
requirements in Sec.  210.13 to ensure the safe and sanitary storage, 
inventory management, and use of donated foods and purchased foods. In 
accordance with Sec.  250.14(c), the school food authority may 
commingle donated foods and purchased foods in storage and maintain a 
single inventory record of such commingled foods, in a single inventory 
management system.
    (b) Use of donated foods in the nonprofit school food service. The 
school food authority must use donated foods, as much as is practical, 
in the lunches served to schoolchildren, for which they receive an 
established per-meal value of donated food assistance each school year. 
However, the school food authority may also use donated foods in other 
activities of the nonprofit school food service. Revenues received from 
such activities must accrue to the school food authority's nonprofit 
school food service account, in accordance with Sec.  210.14. Some 
examples of such activities in which donated foods may be used include:
    (1) School breakfasts or other meals served in child nutrition 
programs;
    (2) A la carte foods sold to schoolchildren;
    (3) Meals served to adults directly involved in the operation and 
administration of the nonprofit school food service, and to other 
school staff; and
    (4) Training in nutrition, health, food service, or general home 
economics instruction for students.
    (c) Use of donated foods outside of the nonprofit school food 
service. The school food authority should not use donated foods in 
meals or other activities that do not benefit primarily schoolchildren, 
such as banquets or catered events. However, as their use in such 
activities may not always be avoided (e.g., if donated foods are 
commingled with purchased foods in a single inventory management 
system), the school food authority must ensure reimbursement to the 
nonprofit school food service for the value of donated foods used in 
such activities. When such reimbursement may not be based on actual 
usage of donated foods (e.g., in a single inventory management system), 
the school food authority must establish an alternate method of 
reimbursement--e.g., by including the current per-meal value of donated 
food assistance in the price charged for the meal or other activity.
    (d) Use of donated foods in a contract with a food service 
management company. When the school food authority contracts with a 
food service management company to conduct the food service, in 
accordance with Sec.  210.16, it must ensure compliance with 
requirements in Subpart D of this part, which address the treatment of 
donated foods under such contract. The school food authority must also 
ensure compliance with the use of donated foods in paragraphs (b) and 
(c) of this section under its contract with a food service management 
company.
    (e) School food authorities acting as a collective unit. Two or 
more school food authorities may conduct activities of the nonprofit 
school food service as a collective unit (e.g., in a school co-op or 
consortium), including activities relating to donated foods. Such 
activities must be conducted in accordance with a written agreement or 
contract between the parties. The school food authority collective unit 
is subject to the same requirements as a single school food authority 
in conducting such activities. For example, the school food authority 
collective unit may use a single inventory management system in its 
storage and control of purchased and donated foods.


Sec.  250.60  [Removed]

0
9. Remove Sec.  250.60.


Sec. Sec.  250.61 and 250.62  [Redesignated as Sec. Sec.  250.60 and 
250.61]

0
10. Redesignate Sec. Sec.  250.61 and 250.62 as Sec. Sec.  250.60 and 
250.61, respectively.
0
11. Revise Subpart F to read as follows:
Subpart F--Household Programs
Sec.
250.63 Commodity Supplemental Food Program (CSFP).
250.64 The Emergency Food Assistance Program (TEFAP).
250.65 Food Distribution Program on Indian Reservations (FDPIR).
250.66 [Reserved]


Sec.  250.63  Commodity Supplemental Food Program (CSFP).

    (a) Distribution of donated foods in CSFP. The Department provides 
donated foods in CSFP to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR part 247) for further distribution in 
the State, in accordance with 7 CFR part 247. State agencies and 
recipient agencies (i.e., local agencies in 7 CFR part 247) must comply 
with the requirements of this part in the distribution, control, and 
use of donated foods in CSFP, to the extent that such requirements are 
not inconsistent with the requirements in 7 CFR part 247.
    (b) Types of donated foods distributed. Donated foods distributed 
in CSFP include Section 4(a) foods, and donated foods provided under 
Section 32, Section 416, or Section 709, as available.


Sec.  250.64  The Emergency Food Assistance Program (TEFAP).

    (a) Distribution of donated foods in TEFAP. The Department provides 
donated foods in TEFAP to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR part 251) for further distribution in 
the State, in accordance with 7 CFR part 251. State agencies and 
recipient agencies must comply with the requirements of this part in 
the distribution, control, and use of donated foods, to the extent that 
such requirements are not inconsistent with the requirements in 7 CFR 
part 251.
    (b) Types of donated foods distributed. Donated foods distributed 
in TEFAP include Section 27 foods, and donated foods provided under 
Section 32, Section 416, or Section 709, as available.


Sec.  250.65  Food Distribution Program on Indian Reservations (FDPIR).

    (a) Distribution of donated foods in FDPIR. The Department provides 
donated foods in FDPIR to the distributing agency (i.e., the State 
agency, in accordance with 7 CFR parts 253 and 254, which may be an 
Indian Tribal Organization) for further distribution, in accordance 
with 7 CFR parts 253 and 254. The State agency must comply with the 
requirements of this part in the distribution, control, and use of 
donated foods, to the extent that such requirements are not 
inconsistent with the requirements in 7 CFR parts 253 and 254.
    (b) Types of donated foods distributed. Donated foods distributed 
in FDPIR include Section 4(a) foods, and donated foods provided under 
Section 32, Section 416, or Section 709, as available.


250.66  [Reserved]

Subpart G--Additional Provisions

0
12. Revise the heading for subpart G to read as set forth above.
0
13. Revise Sec.  250.69 to read as follows:


Sec.  250.69  Disasters.

    (a) Use of donated foods to provide congregate meals. The 
distributing agency may provide donated foods from current inventories, 
either at the distributing or recipient agency level, to

[[Page 63255]]

a disaster organization (as defined in Sec.  250.2), for use in 
providing congregate meals to persons in need of food assistance as a 
result of a Presidentially declared disaster or emergency (hereinafter 
referred to collectively as a ``disaster''). FNS approval is not 
required for such use. However, the distributing agency must notify FNS 
that such assistance is to be provided, and the period of time that it 
is expected to be needed. The distributing agency may extend such 
period of assistance as needs dictate, but must notify FNS of such 
extension.
    (b) Use of donated foods for distribution to households. Subject to 
FNS approval, the distributing agency may provide donated foods from 
current inventories, either at the distributing or recipient agency 
level, to a disaster organization, for distribution to households in 
need of food assistance because of a disaster. Such distribution may 
continue for the period that FNS has determined to be necessary to meet 
the needs of such households. However, households receiving disaster 
SNAP (D-SNAP) benefits are not eligible to receive such donated food 
assistance.
    (c) Approval of disaster organization. Before distribution of 
donated foods to a disaster organization, the distributing agency must 
review and approve such organization's application, which must be 
submitted to the distributing agency either electronically or in 
written form. The distributing agency must also submit such application 
to FNS for review and approval before permitting distribution of 
donated foods to households.
    (1) The disaster organization's application must, to the extent 
possible, include the following information:
    (i) A description of the disaster situation;
    (ii) The number of people requiring assistance;
    (iii) The period of time for which donated foods are requested;
    (iv) The quantity and types of food needed; and
    (v) The number and location of sites where donated foods are to be 
used, to the extent that such information is known.
    (2) In addition to the information required above, disaster 
organizations applying to distribute donated foods to households must 
include the following information in their application:
    (i) An explanation as to why such distribution is needed;
    (ii) The method(s) of distribution available; and
    (iii) A statement assuring that D-SNAP benefits and donated food 
assistance will not be provided simultaneously to individual 
households, and a description of the system that will be implemented to 
prevent such dual participation.
    (d) Information from households. If the issuance of D-SNAP benefits 
has been approved, the distributing agency must ensure that the 
disaster organization obtains the following information from households 
receiving donated foods, and reports such information to the 
distributing agency:
    (1) The name and address of the household members applying for 
assistance;
    (2) The number of household members; and
    (3) A statement from the head of the household certifying that the 
household is in need of food assistance, is not receiving D-SNAP 
benefits, and understands that the sale or exchange of donated foods is 
prohibited.
    (e) Eligibility of emergency relief workers for congregate meals. 
The disaster organization may use donated foods to provide meals to any 
emergency relief workers at the congregate feeding site who are 
directly engaged in providing relief assistance.
    (f) Reporting and recordkeeping requirements. The distributing 
agency must report to FNS the number and location of sites where 
donated foods are used in congregate meals or household distribution as 
these sites are established. The distributing agency must also report 
the types and amounts of donated foods from distributing or recipient 
agency storage facilities used in disaster assistance, utilizing form 
FNS-292A, Report of Commodity Distribution for Disaster Relief, which 
must be submitted electronically, within 45 days from the termination 
of disaster assistance. This form must also be used to request 
replacement of donated foods, in accordance with paragraph (g) of this 
section. The distributing agency must maintain records of reports and 
other information relating to disasters.
    (g) Replacement of donated foods. In order to ensure replacement of 
donated foods used in disasters, the distributing agency must submit to 
FNS a request for such replacement, utilizing form FNS-292A, Report of 
Commodity Distribution for Disaster Relief, within 45 days following 
the termination of disaster assistance. The distributing agency may 
request replacement of foods used from inventories in which donated 
foods are commingled with other foods (i.e., at storage facilities of 
recipient agencies utilizing single inventory management), if the 
recipient agency received donated foods of the same type as the foods 
used during the year preceding the onset of the disaster assistance. 
FNS will replace such foods in the amounts used, or in the amount of 
like donated foods received during the preceding year, whichever is 
less.
    (h) Reimbursement of transportation costs. In order to receive 
reimbursement for any costs incurred in transporting donated foods 
within the State, or from one State to another, for use in disasters, 
the distributing agency must submit a public voucher to FNS with 
documentation of such costs. FNS will review the request and reimburse 
the distributing agency.
0
14. Revise Sec.  250.70 to read as follows:


Sec.  250.70  Situations of distress.

    (a) Use of donated foods to provide congregate meals. The 
distributing agency may provide donated foods from current inventories, 
either at the distributing or recipient agency level, to a disaster 
organization, for use in providing congregate meals to persons in need 
of food assistance because of a situation of distress, as this term is 
defined in Sec.  250.2. If the situation of distress results from a 
natural event (e.g., a hurricane, flood, or snowstorm), such donated 
food assistance may be provided for a period not to exceed 30 days, 
without the need for FNS approval. However, the distributing agency 
must notify FNS that such assistance is to be provided. FNS approval 
must be obtained to permit such donated food assistance for a period 
exceeding 30 days. If the situation of distress results from other than 
a natural event (e.g., an explosion), FNS approval is required to 
permit donated food assistance for use in providing congregate meals 
for any period of time.
    (b) Use of donated foods for distribution to households. The 
distributing agency must receive FNS approval to provide donated foods 
from current inventories, either at the distributing or recipient 
agency level, to a disaster organization for distribution to households 
in need of food assistance because of a situation of distress. Such 
distribution may continue for the period of time that FNS determines 
necessary to meet the needs of such households. However, households 
receiving D-SNAP benefits are not eligible to receive such donated food 
assistance.
    (c) Approval of disaster organizations. Before distribution of 
donated foods to a disaster organization, the distributing agency must 
review and approve such organization's application, which must be 
submitted to the distributing agency either electronically or in 
written form. The distributing agency must also submit such application 
to FNS for review and approval before permitting

[[Page 63256]]

distribution of donated foods in a situation of distress that is not 
the result of a natural event, or for any distribution of donated foods 
to households. The disaster organization's application must, to the 
extent possible, include the information required in Sec.  250.69(c).
    (d) Information from households. If the issuance of D-SNAP benefits 
has been approved, the distributing agency must ensure that the 
disaster organization obtains the information in Sec.  250.69(d) from 
households receiving donated foods, and reports such information to the 
distributing agency.
    (e) Eligibility of emergency relief workers for congregate meals. 
The disaster organization may use donated foods to provide meals to any 
emergency relief workers at the congregate feeding site that are 
directly engaged in providing relief assistance.
    (f) Reporting and recordkeeping requirements. The distributing 
agency must report to FNS the number and location of sites where 
donated foods are used in congregate meals or household distribution as 
these sites are established. The distributing agency must also report 
the types and amounts of donated foods from distributing or recipient 
agency storage facilities used in the situation of distress, utilizing 
form FNS-292A, Report of Commodity Distribution for Disaster Relief, 
which must be submitted electronically, within 45 days from the 
termination of assistance. This form must also be used to request 
replacement of donated foods, in accordance with paragraph (g) of this 
section. The distributing agency must maintain records of reports and 
other information relating to situations of distress.
    (g) Replacement of donated foods. FNS will replace donated foods 
used in a situation of distress only to the extent that funds to 
provide for such replacement are available. The distributing agency 
must submit to FNS a request for replacement of such foods, utilizing 
form FNS-292A, Report of Commodity Distribution for Disaster Relief, 
which must be submitted electronically, within 45 days from the 
termination of assistance. The distributing agency may request 
replacement of foods used from inventories in which donated foods are 
commingled with other foods (i.e., at storage facilities of recipient 
agencies utilizing single inventory management), if the recipient 
agency received donated foods of the same type as the foods used during 
the year preceding the onset of the situation of distress. Subject to 
the availability of funds, FNS will replace such foods in the amounts 
used, or in the amount of like donated foods received during the 
preceding year, whichever is less.
    (h) Reimbursement of transportation costs. In order to receive 
reimbursement for any costs incurred in transporting donated foods 
within the State, or from one State to another, for use in a situation 
of distress, the distributing agency must submit a public voucher to 
FNS with documentation of such costs. FNS will review the request and 
reimburse the distributing agency to the extent that funds are 
available.
0
15. Add Sec.  250.71 to read as follows:


Sec.  250.71  OMB control numbers.

    Unless as otherwise specified in the table below, the information 
collection reporting and recordkeeping requirements in 7 CFR part 250 
are accounted for in OMB control number 0584-0293.

------------------------------------------------------------------------
                 CFR cite                          OMB control No.
------------------------------------------------------------------------
250.4(a)..................................  0584-0067
250.19(a).................................  0584-0067, 0584-0293
250.69(f)-(g) & 250.70(f)-(g).............  0584-0067, 0584-0293
------------------------------------------------------------------------

PART 251--THE EMERGENCY FOOD ASSISTANCE PROGRAM

0
16. The authority citation for part 251 continues to read as follows:

    Authority:  7 U.S.C. 7501-7516.

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17. In Sec.  251.4:
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a. Remove paragraph (f)(4) and redesignate paragraph (f)(5) as 
paragraph (f)(4).
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b. Revise paragraph (g).
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c. Remove paragraph (l).
    The revision reads as follows:


Sec.  251.4  Availability of commodities.

* * * * *
    (g) Distribution and control of donated commodities. The State 
agency must ensure that the distribution, control, and use of donated 
commodities are in accordance with the requirements in this part, and 
with the requirements in 7 CFR part 250, to the extent that 
requirements in 7 CFR part 250 are not inconsistent with the 
requirements in this part. Transfers of donated commodities must comply 
with requirements in Sec. Sec.  250.12(e) and 250.14(d), as applicable. 
In accordance with Sec.  250.16, the State agency must ensure that 
restitution is made for the loss of donated commodities, or for the 
loss or improper use of funds provided for, or obtained as an incidence 
of, the distribution of donated commodities. The State agency is also 
subject to claims for such losses for which it is responsible, or for 
its failure to initiate or pursue claims against other parties 
responsible for such losses.
* * * * *

    Dated: October 8, 2014.
Jeffrey J. Tribiano,
Acting Administrator, Food and Nutrition Service.
[FR Doc. 2014-24613 Filed 10-21-14; 8:45 am]
BILLING CODE 3410-30-P