[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Proposed Rules]
[Pages 21692-21700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08951]


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LEGAL SERVICES CORPORATION

45 CFR Parts 1610, 1627, and 1630


Use of Non-LSC Funds, Transfer of LSC Funds, Program Integrity; 
Subgrants and Membership Fees or Dues; Cost Standards and Procedures

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule revises the Legal Services Corporation (LSC 
or Corporation) regulations governing transfers of LSC funds, subgrants 
to third parties, and cost standards and procedures.

DATES: Comments must be submitted by May 20, 2015.

ADDRESSES: You may submit comments by any of the following methods:
    Email: [email protected]. Include ``Subgrant Rulemaking'' 
in the subject line of the message.
    Fax: (202) 337-6519, ATTN: Subgrant Rulemaking.
    Mail: Stefanie K. Davis, Assistant General Counsel, Legal Services 
Corporation, 3333 K Street NW., Washington, DC 20007, ATTN: Subgrant 
Rulemaking.
    Hand Delivery/Courier: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007, ATTN: Subgrant Rulemaking.
    Instructions: Electronic submissions are preferred via email with 
attachments in Acrobat PDF format. LSC may not consider written 
comments sent via any other method or received after the end of the 
comment period.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007, (202) 295-1563 (phone), (202) 337-6519 (fax), [email protected].

SUPPLEMENTARY INFORMATION:

I. Regulatory History

    A. Part 1627. LSC initially promulgated 45 CFR part 1627 in 1983 to 
improve its oversight of and accountability for LSC funds transferred 
by recipients to third parties. 48 FR 54206, 54207, Nov. 30, 1983. 
Prior to the issuance of part 1627, LSC did not regulate subawards of 
its funds. LSC intended part 1627 to apply to all transfers of LSC 
funds, which it described in the rule as subgrants, fees and dues, 
contributions, transfers to other recipients (considered a type of 
subgrant), training and education activities, and payments to tax-
sheltered annuities, retirement accounts, and pensions on behalf of 
employees. Id. at 54209. LSC did not intend the rule to govern a 
recipient's procurement of goods and services for its own use. 48 FR 
28485, June 22, 1983; 48 FR 54206, 54209, Nov. 30, 1983.
    In the proposed rule for part 1627, LSC defined the term subgrant 
as

    any transfer of funds received from the Corporation by a 
recipient to any organization for the purpose of carrying out a 
portion of the recipient's program under a grant or contract from 
the Corporation; it shall not include a contract for services to be 
rendered directly to the recipient, nor shall it include any 
contract with private attorneys or law firms for the direct 
provision of legal services to eligible clients.

48 FR 28485, 28486, June 22, 1983. In the final rule, LSC incorporated 
the quoted language into the definition of subrecipient, along with new 
language explaining what LSC considered activities conducted ``for the 
purpose of carrying out a portion of the recipient's program.'' 48 FR 
54206, 54207, Nov. 30, 1983. LSC also made contracts with private 
attorneys or law firms for the direct provision of legal services to 
eligible clients subject to the subgrant rule if the contract cost 
exceeded $25,000. Id. LSC redefined the term subgrant as ``any transfer 
of Corporation funds from a recipient which qualifies the organization 
receiving such funds as a subrecipient under the [revised definition of 
subrecipient].'' Id.
    In part 1627, LSC established the process by which a recipient 
could seek approval of a proposed subgrant, the maximum duration of a 
subgrant, the recipient's responsibilities for ensuring compliance with 
LSC's fiscal and audit requirements, and the recipient's responsibility 
to repay any disallowed costs. 48 FR 54206, 54209, Nov. 30, 1983. LSC 
also asserted its own rights to oversee subgrants to ensure the 
subgrantees' compliance with the LSC Act and other applicable statutes, 
LSC's regulations, and Corporation guidelines and instructions. Id. A 
separate section of the rule made these requirements applicable to 
subgrants from one LSC recipient to another. Id. Because a subgrant of 
LSC funds from one LSC recipient to another is a transfer of funds 
granted by the same agency, LSC established reporting, accounting, and 
repayment rules for these types of arrangements that reflect LSC's 
relationship to both parties. Id. at 54210.
    LSC last revised part 1627 in 1996. LSC published an interim rule 
to reflect the complete prohibition on the use of LSC funds to pay fees 
or dues enacted as part of its fiscal year 1996 appropriations act 
(``FY96 appropriations act''). Sec. 505, Public Law 104-134, 110 Stat. 
1321 (1996).

[[Page 21693]]

LSC also added a requirement that recipients establish adequate 
recordkeeping policies to document compliance with part 1627. 61 FR 
45753, 45754, Aug. 29, 1996. The subgrant provisions remained 
unchanged, as did the provisions prohibiting contributions of LSC funds 
to other organizations and allowing recipients to make payments to tax-
sheltered annuity funds, retirement accounts, or pension funds on 
behalf of its employees. Id. at 45753. The interim rule became final 
with only minor, non-substantive changes in 1997. 62 FR 19417, Apr. 21, 
1997.
    B. Part 1610. Part 1610 implements the statutory restrictions on 
the use of non-LSC funds by LSC recipients. 45 CFR 1610.1. Originally 
promulgated in 1976, part 1610 has been revised relatively frequently 
due to changes in statutory restrictions and in LSC's policies 
regarding the application of those restrictions. As with part 1627, LSC 
amended part 1610 in 1996 and 1997 to implement new restrictions 
Congress placed on recipients' LSC and non-LSC funds through the FY96 
appropriations act. Sec. 504, Public Law 104-134, 110 Stat. 1321 
(1996). Relevantly, in the December 1996 final rule, LSC added Sec.  
1610.7 to govern the application of the LSC Act restrictions and the 
FY96 appropriations act restrictions to recipient transfers of LSC 
funds and non-LSC funds to third parties. 61 FR 63749, 63752, Dec. 2, 
1996. Newly added Sec.  1610.7 also established requirements for 
aligning a third-party's priorities for the use of transferred funds 
with the LSC recipient's priorities and for timekeeping on cases and 
matters undertaken with the transferred funds. Id.
    LSC issued a new interim rule in March 1997 in which it removed 
transfers of non-LSC funds from Sec.  1610.7. 62 FR 12101, Mar. 14, 
1997. LSC made this change to part 1610 in response to an order issued 
by the United States District Court for the District of Hawaii 
preliminarily enjoining LSC from enforcing the application of some of 
the FY96 appropriations act restrictions to non-LSC funds. Id.; see 
also Legal Aid Society of Hawaii v. Legal Services Corporation, 961 F. 
Supp. 1402 (D. Haw. 1997). LSC made no other changes to Sec.  1610.7 as 
it applied to transfers of LSC funds. Section 1610.7 became final with 
only minor, non-substantive changes. 62 FR 27695, 27699, May 21, 1997.
    In 2010, LSC revised part 1610 in response to legislation that 
removed the FY96 appropriations act restriction on recipients' ability 
to claim or collect attorneys' fees. 79 FR 21506, 21508, Apr. 26, 2010. 
The 2010 revision did not affect Sec.  1610.7.

II. History of This Rulemaking

    A. Office of Inspector General Audit of the Technology Initiative 
Grant Program. In 2010, LSC's Office of Inspector General (OIG) 
conducted an audit of the Corporation's Technology Initiative Grant 
(TIG) program. Among its findings was a conclusion that LSC improperly 
applied part 1627 to the TIG program. Audit of Legal Services 
Corporation's Technology Initiative Grant Program, Report No. AU-11-01, 
at 41-44, Dec. 2010. In support of its finding, OIG looked to the 
definition of the term subrecipient, particularly the portion stating 
that the entity receiving the award of LSC funds ``agree[s] to conduct 
certain activities specified by or supported by the [original] 
recipient related to the recipient's programmatic activities. Such 
activities would normally include those that might otherwise be 
expected to be conducted by the recipient itself[.]'' Id. at 41; see 
also 45 CFR 1627.2(b)(1). Based on this language, OIG found that

    LSC's subgrant rule applies to all payments made by TIG grantees 
to third parties that then carry out some or all of the activities 
that `might otherwise be expected to be conducted directly by the 
recipient' of a TIG grant made for the purposes specified in the 
grant documents. The TIG grants specify programmatic purposes other 
than the direct provision of legal services, namely the 
implementation of certain technological improvements. Payments by 
TIG grantees to third parties for services that fall within these 
purposes amount to subgrants within the meaning of LSC's regulations 
as currently written and should be administered consistent with the 
requirements of Part 1627.

Id. at 42.
    OIG reached the same conclusion regarding the application of Sec.  
1610.7 to third-party payments of TIG funds. Id. at 50.
    OIG noted in its report that

the programmatic purposes of some TIG grants appeared to overlap the 
sort of business services that might not be treated as subgrants in 
other contexts. There is a degree of ambiguity in the application of 
LSC's subgrant rule to grants with relatively narrow, technological 
programmatic purposes, as was the case with some TIG grants. Part 
1627 draws a distinction between payments to third parties to carry 
out activities `related to the [grantee's] programmatic activities,' 
which must be treated as subgrants, and services provided by 
`vendors or consultants in the normal course of business,' which 
need not be treated as subgrants when the services `would not be 
expected to be provided directly by the [grantee] itself.' The 
subgrant rule appears to have been written with the LSC's principal 
legal service grants in mind, such that ordinarily, programmatic 
activities consist of the provision of legal services, and business 
services can easily be classified as ancillary. This division is not 
as easy to make in the case of TIG grants, and the rule does not 
seem to have anticipated this problem.

Id. at 42.
    OIG recommended that LSC Management ``initiate a process to amend 
LSC regulations to account for [unique features of TIG projects]. . . 
.'' Id. at 44. Management responded that LSC would review the subgrant 
rule ``to determine whether it adequately accounts for the unique 
features of TIGs'' and to determine whether to make recommendations for 
revising part 1627 to the Board of Directors. Id. Management also 
affirmed its reading of the subgrant rule by stating that it had 
consulted the Office of Legal Affairs to distinguish between 
``programmatic subgrants'' and ``non-programmatic expenditures for 
goods and services. . . .'' Id. at 45. OIG considered Management's 
proposal to be responsive, but noted that its own recommendation 
contemplated rulemaking beyond merely making changes to part 1627. Id. 
OIG stated that it would leave the recommendation open until ``all 
actions are completed and the OIG is notified of the results.'' Id.
    B. 2012 Initiation of Rulemaking. Consistent with its response to 
OIG's recommendation, LSC Management presented a Rulemaking Options 
Paper (``ROP'') and Management recommendation to the Operations and 
Regulations Committee (``Committee'') of the LSC Board of Directors 
(``Board'') at its quarterly meeting on April 16, 2012. In the ROP, LSC 
staff discussed options for addressing two issues raised by OIG's 
report. The first set of options pertained to LSC's oversight of TIG 
subawards to third parties that were not considered subgrants. The 
second set of options related to OIG's recommendation to revise the 
regulations to account for the special features of TIGs.
    With respect to LSC's oversight of non-subgrant awards of TIG 
funds, OIG was satisfied that LSC's newly adopted TIG third-party 
contracting policy addressed its concerns. OIG consequently closed the 
related recommendations. In light of this development, Management 
recommended against rulemaking to respond to OIG's recommendations. The 
Committee voted to adopt Management's recommendation.

[[Page 21694]]

    LSC developed three options to address OIG's concern that TIG 
subawards were not treated properly as subgrants. LSC first proposed 
that the Board could choose not to engage in rulemaking on the matter 
and let Management continue to apply its interpretation of the subgrant 
rules at part 1627 and the transfer rule at part 1610. LSC's next 
options each contemplated rulemaking, but in opposing directions. The 
second option proposed initiating rulemaking to adopt Management's 
interpretation of part 1627: That in order to be considered a subgrant, 
the award to a third party must be for carrying out the recipient's 
overall programmatic purpose of providing legal assistance to eligible 
clients. The last option was to initiate rulemaking to adopt OIG's 
interpretation of the rule: That a subgrant is any award to a third 
party to carry out the programmatic purposes of the particular grant 
from which the award is made.
    In its memo to the Committee, Management recommended that the 
Committee initiate rulemaking to amend parts 1610 and 1627. Management 
believed that both rules should be amended to reflect LSC's 
``longstanding reading of these rules--that is, that both rules are 
designed to address legal services activities.'' Management explained 
that the transfer rule, which takes the definition of ``transfer'' 
substantially from part 1627,

subjects the transferee to all of LSC's substantive restrictions on 
legal services activities, including the 1996 restrictions that 
reach the use of non-LSC funds. These restrictions involve legal 
services activities (such as class actions, representation of 
aliens, and lobbying) and legal aid program operations (such as 
program priorities and timekeeping for cases and matters). As with 
the subgrant rule, the transfer rule does not extend those 
restrictions to non-programmatic procurement of goods or services. 
Management does not believe it would be prudent grant management to 
extend these types of restrictions and requirements to third-party 
vendors that provide business services and technology services as 
part of TIGs. These LSC restrictions are meant to apply to entities 
that receive LSC funds for the provision of legal services under the 
LSC Act.

    Management further explained that its interpretation avoids absurd 
results in other contexts. For example, LSC makes disaster relief 
grants to recipients whose offices have been damaged or destroyed by 
natural disasters. Those grants may be used to hire contractors to 
rebuild the offices or purchase new office supplies. Under OIG's 
reading, Management said, the building contractor would become a 
subgrantee under part 1627 because the purpose of the emergency grant 
is to help the recipient rebuild. Under Management's interpretation of 
parts 1610 and 1627, it would not.
    The Committee accepted Management's recommendation. On April 16, 
2012, the Chairman of the Committee presented the Committee's 
recommendation to initiate rulemaking on parts 1610 and 1627 to the 
Board of Directors for a vote. Some members of the Board raised 
concerns that because conflicting interpretations of parts 1610 and 
1627 were the impetus for the rulemaking, rulemaking was perhaps an 
inefficient and inappropriate vehicle for resolving the dispute. Rather 
than voting on the Committee's recommendation, the Board voted to 
return the issue to the Committee to determine whether LSC could adopt 
a particular interpretation of parts 1610 and 1627 through a policy 
document rather than through rulemaking.
    In response to the Board's instruction, the Committee directed LSC 
and OIG staff to determine whether LSC had options other than 
rulemaking to resolve the ambiguity regarding which subawards were 
covered by part 1627. The Committee met telephonically on June 18, 
2012, to discuss the results of the staff deliberations. Both OIG and 
Management concluded that rulemaking was necessary to ensure that part 
1627 reflected Management's concept of subgrants as awards to a third 
party for carrying out part of an LSC recipient's grant to provide 
legal services to eligible clients. The Committee concurred, and voted 
again to recommend that the Board initiate rulemaking to revise the 
subgrant rule.
    On July 27, 2012, the Chairman of the Committee presented the 
Committee's recommendation to the Board of Directors. The Board 
accepted the recommendation and directed LSC staff to develop a draft 
rule for the Board's consideration, and OIG closed the related 
recommendation from its report. The rulemaking, however, became a lower 
priority on the Committee's agenda as a result of two factors. The 
first was the issuance of LSC's Pro Bono Task Force Report, which led 
to the extensive rulemaking process to revise part 1614. The second was 
the need to revise parts 1613 and 1626 to accommodate legislative 
changes to LSC's authority to provide legal assistance to individuals 
facing criminal charges in tribal courts and to certain non-citizen 
victims of violence, respectively. LSC revived the part 1627 rulemaking 
as a priority item on its 2015-2016 rulemaking agenda.
    On April 12, 2015, the Committee voted to recommend that the Board 
publish this NPRM in the Federal Register for notice and comment. On 
April 14, 2015, the Board accepted the Committee's recommendation and 
approved publication of the NPRM.

III. Section-by-Section Analysis of Proposed Changes.

    As will be discussed in more detail below, LSC proposes to revise 
part 1627 to adopt Management's interpretation of the rule as applying 
only to those subgrants awarded to third parties for the purpose of 
carrying out legal assistance activities authorized by the recipient's 
LSC grant. LSC also proposes to transfer Sec.  1610.7, which governs 
the applicability of the restrictions placed upon acceptance of LSC 
funds by the LSC Act and Sec.  504 of LSC's fiscal year 1996 
appropriations act, to part 1627. Finally, LSC proposes to transfer 
existing Sec. Sec.  1627.4, 1627.5, and 1627.7 from part 1627 to part 
1630, which governs the allowability and allocability of costs to LSC 
grants. LSC seeks comments on each of the proposed changes.

A. Proposed Changes to Part 1627

    Sec.  1627.1 Purpose. LSC proposes to revise this section to state 
more clearly that part 1627 establishes the requirements for subgrants 
of LSC funds.
    Sec.  1627.2 Definitions. LSC proposes to alphabetize the 
definitions for ease of reference. Because LSC is proposing to relocate 
existing Sec.  1627.4 to part 1630, LSC proposes to remove the 
definition of membership fees or dues currently located in paragraph 
(c) of this section.
    Sec.  1627.2(a) Private attorney. LSC proposes to adopt the 
definition of the term private attorney established by 45 CFR part 
1614.
    Sec.  1627.2(b) Programmatic. LSC proposes to define the term 
programmatic to mean ``activities or functions carried out for the 
purpose of providing legal assistance, as defined in Sec.  1002 of the 
LSC Act, 42 U.S.C. 2996a(5).'' Programmatic activities do not include 
the provision of goods or services by vendors or consultants that the 
recipient would not be expected to provide itself.
    LSC proposes defining programmatic to explicitly reference the 
definition of legal assistance provided in the LSC Act to ensure that 
Management's interpretation of part 1627 applies. In other words, 
activities are programmatic only if they are conducted in furtherance 
of a recipient's grant to provide legal assistance to eligible clients. 
Activities are not programmatic if they are technical in nature, such 
as

[[Page 21695]]

the provision of web development services.
    Sec.  1627.2(c) Recipient. LSC proposes to remove recipients of 
grants or contracts awarded under section 1006(a)(3) of the LSC Act, 42 
U.S.C. 2996e(a)(3), from the definition of recipient. Section 
1006(a)(3) of the LSC Act authorizes LSC ``to undertake directly, or by 
grant or contract, the following activities relating to the delivery of 
legal assistance--research . . . training and technical assistance, and 
[] to serve as a clearinghouse for information.'' 42 U.S.C. 
2996e(a)(3). LSC proposes to remove these types of awards from the 
scope of part 1627 because, as Congress stated, the activities funded 
through these awards are related to the delivery of legal assistance, 
but are not themselves an integral part of a recipient's delivery of 
legal assistance. LSC currently does not make awards under Sec.  
1006(a)(3) of the LSC Act; if LSC did, 45 CFR part 1630, LSC's cost 
standards and procedures, would continue to govern entities receiving 
such awards.
    Sec.  1627.2(d) Subgrant. LSC proposes to revise the definition of 
subgrant currently in Sec.  1627.2(b)(2). LSC proposes to adopt a 
definition that substantially mirrors the definition of subaward 
contained in the Uniform Grants Guidance (UGG), 2 CFR 200.92, which 
applies to Federal awards. LSC proposes to revise the definition to 
make clear that the purpose of the award is to carry out part of the 
recipient's grant to provide legal assistance and to remove the 
references to ``pass-through entities.'' LSC is not bound by the UGG, 
and does not intend, by adopting this definition, to obligate itself or 
its recipients to abide by the rules for pass-through entities and 
subgrantees established by the UGG.
    LSC proposes to retain the exclusion from the definition of 
subgrant for judicare arrangements or contracts with private attorneys 
for the direct delivery of legal assistance to recipients' clients. LSC 
also seeks comment regarding the $25,000 threshold for private attorney 
involvement (PAI) contracts supported with LSC funds. During the 
rulemaking to revise part 1614 on PAI, LSC received a comment 
recommending that LSC increase the threshold from $25,000 to $60,000 to 
account for inflation since LSC established the $25,000 threshold in 
1983. 70 FR 61770, 61780, Oct. 15, 2014. After consideration, LSC 
determined that it would benefit from receiving additional information 
before making any adjustments to the threshold. For this reason, LSC 
specifically requests comments on whether it should amend the $25,000 
threshold, on what amount LSC should set as the new threshold, and 
providing justification for the proposed threshold.
    Sec.  1627.2(e) Subrecipient. LSC proposes to simplify the existing 
definition of subrecipient currently located at Sec.  1627.2(b)(1). LSC 
proposes to move relevant portions of the current definition to the 
definitions of programmatic and subgrant to improve clarity. The 
revised definition will continue to make clear that a single entity may 
be a subrecipient with respect to some activities, while not being a 
subrecipient for other activities it conducts for a recipient.
    Sec.  1627.3 Characteristics of subgrants. LSC proposes to add a 
new Sec.  1627.3 stating the factors that recipients should consider in 
determining whether a potential award is a subgrant and requiring 
recipients to support subgrants using funds, rather than goods or 
services. LSC proposes to add this section to provide recipients with a 
framework for determining whether a proposed award to a third party is 
a subgrant subject to the requirements of this part. This section will 
make clear that subgrants are awards to third parties that support a 
recipient's delivery of legal assistance to eligible clients, 
consistent with Management's interpretation of part 1627.
    The first two paragraphs of proposed Sec.  1627.3 are taken 
substantially from the UGG, specifically 2 CFR 200.330. Paragraph (a) 
adopts the language at Sec.  200.330(c), which explains that the listed 
characteristics are indicative of a subgrant, but need not all be 
present in order for an award to be considered a subgrant. Paragraph 
(b) sets forth the characteristics of a subgrant from Sec.  200.330(a), 
with minor revisions to make clear that the context for subgrant 
activities and the performance of the subrecipient is the LSC 
recipient's legal services work.
    In considering whether an award should be a subgrant, the primary 
question is whether the work the subrecipient is doing essentially 
substitutes for the recipient's legal services work. The following 
examples demonstrate whether certain types of awards to third parties 
meet the characteristics of a subgrant.
    Example 1: An LSC recipient provides an award to another legal 
services organization to conduct telephone intake and refer cases 
either to private attorneys for handling or to another organization if 
the caller is not eligible for LSC-funded legal assistance. This award 
would properly be considered a subgrant because it meets all five of 
the characteristics. First, the subrecipient is responsible for 
determining who is eligible, including whether the person's case is 
within the recipient's priorities, for legal assistance under the 
recipient's LSC grant. Second, the subrecipient's performance in 
referring cases to private attorneys is measured in relation to the 
recipient's objectives for referring cases to private attorneys in 
order to meet the requirements of the PAI rule. Third, the subrecipient 
has responsibility for programmatic decisionmaking because it 
determines which types of cases it will refer to private attorneys and 
which it will refer to another provider. Fourth, as it acknowledges in 
the subgrant agreement, the subrecipient is responsible for adhering to 
applicable LSC program requirements specified in the award. Finally, 
the subrecipient will use the LSC funds to carry out legal assistance 
activities authorized by LSC's governing statutes and regulations, as 
opposed to providing goods or services for the benefit of the 
recipient.
    Example 2: An LSC recipient provides an award to a web designer to 
develop an online portal for clients and other stakeholders to obtain 
general legal information about particular areas of law, such as 
divorces and bankruptcies, as well as contact information for the legal 
services providers in the state. This award would not be a subgrant 
because it does not have most of the characteristics set forth in Sec.  
1627.3(b). The web designer does not determine eligibility to receive 
legal assistance under the recipient's LSC grant, nor does it have 
responsibility for programmatic decision making. The designer does not 
have its performance measured in relation to whether the recipient's 
objectives for providing legal services are met, and it is not required 
to adhere to the programmatic requirements set forth in the recipient's 
award from LSC. With respect to the fifth characteristic--that the 
subrecipient uses LSC funds to carry out a program for a public purpose 
specified in LSC's governing statutes and regulations, rather than 
providing goods or services for the recipient's benefit--there is room 
for debate about whether the web designer's work is for the public 
purpose of providing legal information to eligible clients, or is 
instead technical services provided for the benefit of the recipient. 
On balance, however, this type of award appears to be considered more 
appropriately as a procurement contract.
    LSC reminds recipients that awards of LSC funds to third parties 
that do not meet the characteristics of subgrants, including 
procurements of services, must meet the applicable requirements of 45 
CFR part 1630, as well as the

[[Page 21696]]

Property Acquisition and Management Manual (PAMM).
    Proposed paragraph (c) states that any award to a third party that 
is determined to be a subgrant based on an analysis of the factors in 
paragraph (b) must be supported using LSC funds. LSC has learned that 
some recipients have entered into agreements with other entities in 
which the recipients provided goods, including office space and office 
supplies, in exchange for the other entities' carrying out PAI 
activities on behalf of the recipient. The recipients in question did 
not seek prior approval of these agreements because they were exchanges 
of goods and services, rather than funds; therefore, the recipients did 
not consider the arrangements to be subgrants subject to the 
requirements of part 1627.
    As an organization responsible for disbursing and ensuring 
accountability for the use of appropriated public funds, LSC must be 
able to determine that any funds it awards are spent consistent with 
the terms of its governing statutes and regulations. It is difficult to 
ensure that goods and services, which may be purchased in whole or in 
part with LSC funds, transferred to a third party are used in a manner 
consistent with LSC's governing statutes. Ensuring the accountability 
of LSC-supported resources is particularly crucial when the resources 
are provided to a third party that conducts restricted activities in 
addition to the activities that it is carrying out on behalf of an LSC 
recipient. In order to ensure the proper use of LSC funds by any entity 
receiving those funds or resources supported by those funds, LSC 
believes that any arrangement qualifying as a subgrant under Sec.  
1627.3(b) must be paid for with actual funds and not with goods or 
services.
    Sec.  1627.4 Requirements for all subgrants. LSC proposes to 
transfer existing Sec.  1627.4, prohibiting the use of LSC funds to pay 
membership fees or dues, to part 1630. LSC proposes this transfer to 
limit the scope of part 1627 to subgrants and to move a provision 
pertaining to the allowability of costs to the part of LSC's 
regulations governing cost standards. To accommodate the inclusion of 
new Sec.  1627.3, LSC proposes to restructure existing Sec.  1627.3 and 
redesignate it as Sec.  1627.4. LSC also proposes to revise the text of 
certain paragraphs to reflect changes to the grant approval process and 
the resulting changes to the subgrant approval process.
    Sec.  1627.4(a) Corporation approval of subgrants. LSC proposes to 
revise paragraph (a) to tell recipients how to submit subgrant 
applications for approval. The process will vary based on the type of 
grant--Basic Field or special--for which the recipient seeks to award a 
subgrant, and the time at which the recipient is seeking approval.
    In paragraph (a)(1)(i), LSC proposes that recipients must submit 
applications for subgrants of Basic Field Grant funds at the same time 
as recipients submit their proposals for Basic Field Grant funding. 
This would consolidate the subgrant approval process with the main 
grant competition process. LSC also proposes to prescribe the format 
and substance of requests for subgrant approval annually through notice 
in the Federal Register. Finally, in paragraph (a)(1)(ii), LSC proposes 
to inform recipients of its decision to approve, disapprove, or suggest 
modifications to the proposed subgrants prior to or at the same time as 
it informs recipients of its decision whether to award Basic Field 
Grant funding.
    In paragraph (a)(2), LSC proposes to formalize in regulation its 
current process for requesting and approving subgrants in its special 
grant programs. The application and award processes for special grants 
proceed on different schedules from the Basic Field Grant application 
and award process. LSC's special grant programs are all programs 
outside of Basic Field Grants--which include Basic Field-Migrant and 
Basic Field-Native American grants. TIG and the Pro Bono Innovation 
Fund (PBIF) grants are examples of special grants, as are disaster 
relief grants.
    As described in proposed paragraph (a)(2)(i), recipients currently 
submit applications for approval of subgrants in special grant programs 
after LSC has awarded them grants. Because the special grant programs 
are highly competitive, LSC structured the process this way to avoid 
making recipients invest significant amounts of time in developing, 
finalizing, and executing subgrant agreements for projects that 
ultimately are not funded. To allow for flexibility in the form and 
substance of subgrant applications for the special grant programs, LSC 
also proposes in this paragraph to publish the requirements for 
subgrant applications on its Web site and in the Federal Register on an 
annual basis.
    In paragraph (a)(2)(ii), LSC proposes to adopt existing Sec.  
1627.3(a)(2) in substantial part. LSC proposes to require recipients to 
submit applications for subgrant approval at least 45 days prior to the 
start date of the subgrant. LSC will consider and make a decision to 
approve, disapprove, or suggest modifications to applications for 
approval. Recipients may resubmit for approval applications to which 
LSC suggested modifications or that LSC has disapproved. LSC proposes 
to omit the sentence deeming subgrants approved if LSC fails to make a 
decision on the subgrant application within the specified period of 
time. LSC is committed to making timely decisions on recipient requests 
for subgrant approval and does not believe the current policy is 
consistent with its responsibility to ensure that recipients spend 
their LSC funds efficiently and effectively.
    Finally, LSC proposes to establish in Sec.  1627.4(a)(3) a process 
for the submission and approval of subgrant applications during the 
grant period for both Basic Field and special grants. LSC recognizes 
that unanticipated situations, such as the need to terminate and 
replace an underperforming subrecipient, may cause a recipient to need 
approval of a subgrant during the grant period. For mid-grant subgrant 
applications, LSC proposes in paragraph (a)(3)(i) that recipients 
should submit an application, using the format prescribed by LSC on its 
Web site and in the Federal Register. Finally, LSC proposes to adopt 
the 45-day period for submission of applications established in 
paragraph (a)(2)(ii) of this section.
    LSC proposes conforming changes to existing Sec.  1627.3(a)(3), 
which will be relocated to Sec.  1627.4(a)(4).
    LSC proposes to remove existing Sec.  1627.3(a)(4), which 
authorized the extension of subgrants that were being executed at the 
time part 1627 became effective in 1983. This rule is obsolete and 
should be removed from part 1627. Finally, LSC proposes to relocate 
existing Sec.  1627.3(b)(3), which requires recipients to seek 
Corporation approval of any substantial changes in the scope, 
objectives, or funding amount of a subgrant, to Sec.  1627.4(a)(5) 
without change. LSC proposes this change to place all requirements for 
Corporation approval of subgrant proposals or substantial changes 
within the same paragraph.
    Sec.  1627.4(b) Duration of subgrant. LSC proposes to revise 
paragraph (b) to establish the maximum length of subgrant periods. For 
Basic Field grants, LSC proposes to limit subgrant periods to one year 
and to require recipients to submit a new application for each subgrant 
in each year of the Basic Field grant. For special grants, including 
TIG and PBIF grants, LSC proposes to allow the maximum subgrant period 
to match the period of the recipient's special grant.
    Recipients of Basic Field grants must either compete for new grants 
or apply for renewal of their current grants annually. This schedule 
supports a

[[Page 21697]]

conclusion that recipient's subgrants should likewise be reviewed 
annually to ensure that the subgrants comply with LSC's statutes and 
regulations, and that the subgrants represent an effective and 
efficient use of the recipient's LSC resources.
    By contrast, special grants are for discrete, time-limited projects 
that may require recipients to engage the subrecipient for the life of 
the project in order to secure the subrecipient's participation. 
Additionally, LSC requires special grant recipients to report more 
frequently about their progress toward meeting project milestones or 
objectives. This increased reporting allows LSC to assess whether a 
recipient's subgrants are performing effectively and efficiently 
throughout the grant period. Because reporting on the performance of a 
special grant, including the performance of subrecipients of special 
grant funds, occurs more frequently than once a year, it is not 
necessary for LSC to limit the maximum duration of a subgrant awarded 
as part of a special grant to one year.
    For similar reasons, LSC proposes to treat subgrant funds remaining 
at the end of the grant year differently. In paragraph (b)(1), LSC 
proposes to retain the existing language stating that unexpended Basic 
Field subgrant funds will be considered part of the recipient's 
available LSC funds. In paragraph (b)(2), LSC proposes to require 
recipients to return funds remaining on a special grant program 
subgrant at the end of the grant term to LSC, unless the recipient 
requests and receives approval from the Corporation to retain such 
funds. This approach is consistent with the current terms of both the 
TIG and PBIF grant assurances, which allow recipients to ask LSC for 
approval to retain any funds that were awarded by LSC to carry out the 
project, but that were not spent because of lower costs or increased 
efficiencies in the operation of the project.
    LSC proposes to redesignate existing Sec.  1627.3(b)(2) as Sec.  
1627.4(b)(3) with revisions. The most substantive of the proposed 
revisions deletes the references to termination and denials of 
refunding as the exclusive events for which recipients should have 
procedures for the orderly termination of subgrants, and replaces them 
with general language that subgrants should terminate ``in the event 
that the recipient is no longer an LSC recipient.'' LSC proposes 
adopting the general language to reflect that a recipient's policies 
governing the orderly termination of subgrants should apply in any 
instance where the recipient ceases to be an LSC recipient, including 
termination by LSC, voluntary termination by the recipient, or a 
failure to receive funding through competition. The other changes LSC 
proposes are editorial.
    Sec.  1627.4(c) Recipient responsibilities. For ease of reference, 
LSC proposes to restructure and consolidate the paragraphs of existing 
Sec.  1627.3 governing the recipient's particular oversight and 
repayment obligations into a new Sec.  1627.4(c). Proposed paragraphs 
(c)(1) and (2) adopt the first two sentences of existing Sec.  
1627.3(c) regarding recipients' duties to ensure that their 
subrecipients comply with LSC's financial and audit provisions and to 
ensure that their subrecipients properly spend, account for, and audit 
subgrant funds, respectively. LSC proposes to relocate existing Sec.  
1627.3(d), which requires a recipient to repay LSC for any disallowed 
expenditures of LSC funds incurred by a subrecipient, to paragraph 
(c)(3).
    Sec.  1627.4(d) Accounting of funds. LSC proposes to restructure 
and consolidate the paragraphs of existing Sec.  1627.3 governing the 
accounting of subgrant funds into a new Sec.  1627.4(d). This paragraph 
states that subgrants of LSC funds are subject to the audit and 
financial requirements of the Audit and Accounting Guide for Recipients 
and Auditors. LSC proposes to delete the last two sentences in existing 
Sec.  1627.3(c), which authorize recipients to enter into subgrant 
agreements that provide for an alternate auditing method. LSC is not 
aware that this provision has been used and proposes to remove it as 
unnecessary.
    Sec.  1627.4(e) Oversight. LSC proposes to relocate existing Sec.  
1627.3(e) to new Sec.  1627.4(e) with minor editorial changes.
    Sec.  1627.5 Applicability of restrictions, timekeeping, and 
recipient priorities; private attorney involvement subgrants. LSC 
proposes to transfer existing Sec.  1627.5, prohibiting the use of LSC 
funds to make contributions or gifts to other organizations or 
individuals, to part 1630. LSC proposes this transfer to limit the 
scope of part 1627 to subgrants and to move another provision 
pertaining to the allowability of costs to the part of LSC's 
regulations governing cost standards.
    Additionally, because LSC has considered subgrants and transfers as 
functionally the same, LSC proposes to transfer 45 CFR 1610.7, the 
transfer rule, to part 1627 and redesignate it as Sec.  1627.5. The 
restrictions listed in 45 CFR 1610.2--restrictions established by both 
the LSC Act and the FY96 appropriations act--will continue to apply to 
all subgrants. LSC proposes to make only minor edits to paragraphs (a) 
and (b) for clarity.
    Sec.  1627.5(c) Timekeeping. LSC proposes to move the timekeeping 
requirement to its own paragraph and revise the requirement itself. 
Currently, Sec.  1610.7(b)(2) requires only that recipients ``maintain 
records of time spent on each case or matter undertaken with the funds 
transferred.'' In the preamble to the 1997 final rule, LSC tied the 
timekeeping requirement to the language in Section 504(a)(10)(A) of the 
FY96 appropriations act, which prohibited LSC funds from being awarded 
to any person or entity unless ``prior to receiving the financial 
assistance, such person or entity agrees to maintain records of time 
spent on each case or matter with respect to which the person or entity 
is engaged.'' Sec. 504(a)(10)(A), Pub. L. 104-134, 110 Stat. 1321, 
1321-54. LSC stated in the preamble that the rule did not require 
recipients ``to keep time in accordance with the Corporation's 
timekeeping regulation, 45 CFR part 1635,'' but also did not provide 
guidance to recipients about the level of timekeeping that would be 
sufficient ``to ensure accountability for [the transferred] funds.'' 62 
FR 27695, 27697, May 21, 1997. To further confuse matters, part 1614 
states that ``[i]f any direct or indirect time of staff attorneys or 
paralegals is to be allocated as a cost to PAI, such costs must be 
documented by time sheets accounting for the time those employees have 
spent on PAI activities.'' 45 CFR 1614.7(a)(1).
    LSC considered multiple options for creating coherent timekeeping 
requirements for recipients and subrecipients alike. LSC considered 
leaving the current language in place and adding language describing 
the minimum requirements for subrecipient timekeeping. Doing so would 
allow recipients and subrecipients flexibility to develop timekeeping 
systems that would ensure accountability for expenditures of LSC funds, 
while minimizing the administrative burden to the subrecipient. LSC 
also considered making the part 1635 timekeeping requirements 
applicable to non-PAI subgrants and the part 1614 timekeeping 
requirements applicable to PAI subgrants. This option would be 
consistent with the way in which LSC's regulations direct recipients to 
document time spent on the recipients' non-PAI and PAI activities, 
respectively.
    LSC ultimately chose to propose a requirement that all 
subrecipients comply with the part 1635 timekeeping requirements for 
all LSC-funded subgrant activities. LSC chose this

[[Page 21698]]

option for three reasons. First, LSC learned that some recipients have 
interpreted Sec.  1610.7(b)(2) as not requiring subrecipients to keep 
time records. This interpretation is incorrect. Section 1610.7(b)(2) 
clearly states that subrecipients ``are required to maintain records of 
time spent on each case or matter undertaken'' with LSC funds, although 
LSC also stated in the preamble to the 1997 final rule for part 1610 
that subrecipients did not have ``to keep time in accordance with the 
Corporation's timekeeping regulation, 45 CFR part 1635.'' 62 FR 27695, 
27697, May 21, 1997. Second, LSC's experience overseeing subgrants over 
the eighteen years since LSC revised Sec.  1610.7 has given LSC reason 
to believe that clear timekeeping requirements for subgrants will lead 
to increased accountability for the use of LSC funds by subrecipients. 
Finally, LSC believes that having three distinct timekeeping 
requirements creates unnecessary confusion about which requirements 
apply to which uses of LSC funds. LSC's proposal will make the 
timekeeping provisions of parts 1627 and 1635 consistent and will 
reflect the methods that recipients use to document time charged to 
their LSC grants.
    LSC understands that some subrecipients may be small organizations 
that currently do not have, or may find it difficult to develop, the 
capacity to maintain timekeeping records that comply with part 1635. 
For that reason, LSC specifically seeks comment on the proposal to 
require all subrecipients to comply with the timekeeping requirements 
of part 1635.
    Sec.  1627.5(d) PAI subgrants. LSC proposes to redesignate existing 
Sec.  1610.7(c) as Sec.  1627.5(d) and to make editorial changes to the 
paragraph for clarity. LSC also proposes to adopt a new paragraph 
(d)(2) stating that, with respect to PAI subgrants, all funds that a 
recipient uses to support the subgrant are deemed to be LSC funds for 
purposes of the restrictions listed in 45 CFR 1610.2. LSC requires its 
recipients to expend an amount equal to at least 12.5% of its LSC grant 
to PAI activities. See 45 CFR 1614.1(a). This language gives recipients 
discretion about whether they spend entirely LSC funds, entirely non-
LSC funds, or some combination of the two, on PAI activities. The 
reason for the proposed paragraph is to put in the regulation the 
analysis reflected in AO-2009-1004 that activities carried out as part 
of a recipient's PAI program, regardless of the source of funds, must 
be consistent with LSC's governing statutes and regulations. See 
Advisory Opinion AO-2009-1004, at 3-4, June 19, 2009.
    Sec.  1627.6 Subgrants to other recipients. LSC proposes to make 
only non-substantive editorial changes to this section.
    Sec.  1627.7 Recipient policies, procedures, and recordkeeping. LSC 
proposes to transfer existing Sec.  1627.7, regarding recipient 
payments to tax-sheltered annuities, retirement accounts, and pensions, 
to part 1630. LSC proposes this transfer to limit the scope of part 
1627 to subgrants and to move the final provision in part 1627 
pertaining to the allowability of costs to the part of LSC's 
regulations governing cost standards. LSC proposes to redesignate 
existing Sec.  1627.8 as Sec.  1627.7 without revision.

B. Proposed Changes to Part 1610

    Sec.  1610.2 Definitions. LSC proposes to eliminate the term 
transfer and replace it with the term subgrant, as defined in Sec.  
1627.2(d). LSC intended the current definition of transfer to mirror 
the definition of subgrant, but it does not. The slight differences 
between the two definitions have caused confusion about whether the 
terms are coextensive. LSC has treated the terms as functionally 
equivalent since it enacted Sec.  1610.7 in 1997. LSC's proposed change 
will eliminate ambiguity by combining the two concepts into one term. 
The proposed change will not affect the current order of definitions in 
Sec.  1610.2. If this change becomes final, LSC will need to amend 
Sec.  1610.8(a)(2) to conform with the change.
    Sec.  1610.7 Transfers of LSC funds. As described more fully above, 
LSC proposes to transfer this section to part 1627 because it governs 
the application of the LSC Act and FY96 appropriations act restrictions 
listed in Sec.  1610.2 to a subrecipient's LSC and non-LSC funds. LSC 
believes that because Sec.  1610.7 effectively applies to subgrants, it 
should be located in part 1627 with the rest of the subgrant rules. 
Should this proposed change become final, LSC will need to redesignate 
existing Sec. Sec.  1610.8 and 1610.9 to reflect the removal of Sec.  
1610.7.

C. Proposed Changes to Part 1630

    In the interest of making its regulations easier to use, LSC 
proposes to limit the scope of part 1627 to provisions applicable to 
subgrants. Three provisions of part 1627 are not related to subgrants, 
but instead proscribe the use of LSC funds to pay membership fees or 
dues (Sec.  1627.4) or to make contributions to other entities or 
individuals (Sec.  1627.5), or allow recipients to make certain 
benefits contributions on behalf of its employees (Sec.  1627.7). LSC 
proposes to transfer these three provisions to part 1630, which 
establishes LSC's cost standards. LSC proposes to redesignate these 
provisions as Sec. Sec.  1630.14-16. LSC does not propose to revise the 
text of these provisions at this time.
    For the reasons stated in the preamble, the Legal Services 
Corporation proposes to amend 45 CFR chapter XVI as follows:

PART 1610--USE OF NON-LSC FUNDS, TRANSFERS OF LSC FUNDS, PROGRAM 
INTEGRITY

0
1. The authority citation for part 1610 continues to read as follows:

    Authority: 42 U.S.C. 2996i; Pub. L. 104-208, 110 Stat. 3009; 
Pub. L. 104-134, 110 Stat. 1321; Pub. L. 111-117; 123 Stat. 3034.


Sec.  1610.7  [Removed]

0
2. Remove Sec.  1610.7.


Sec. Sec.  1610.8 and 1610.9  [Redesignated as Sec. Sec.  1610.7 and 
1610.8]

0
3. Sections 1610.8 and 1610.9 are redesignated as Sec. Sec.  1610.7 and 
1610.8, respectively.

PART 1630--COST STANDARDS AND PROCEDURES

0
4. The authority citation for part 1630 continues to read as follows:

    Authority: 5 U.S.C. App. 3, 42 U.S.C. 2996e, 2996f, 2996g, 
2996h(c)(1); Pub. L. 105-119, 111 Stat. 2440; Pub. L. 104-134, 110 
Stat. 1321.

PART 1627--SUBGRANTS AND MEMBERSHIP FEES OR DUES

0
5. The authority citation for part 1627 is revised to read as follows:

    Authority: 42 U.S.C. 2996g(e).


Sec.  1627.4  [Transferred to Part 1630 and Redesignated as Sec.  
1630.14]

0
6. Section 1627.4 is transferred to part 1630 and redesignated as Sec.  
1630.14.


Sec.  1627.5  [Transferred to Part 1630 and Redesignated as Sec.  
1630.15]

0
7. Section 1627.5 is transferred to part 1630 and redesignated as Sec.  
1630.15.


Sec.  1627.7  [Transferred to Part 1630 and Redesignated as Sec.  
1630.16]

0
8. Section 1627.7 is transferred to part 1630 and redesignated as Sec.  
1630.16.
0
9. Revise part 1627 to read as follows:

PART 1627--SUBGRANTS

Sec.
1627.1 Purpose.
1627.2 Definitions.
1627.3 Characteristics of subgrants.
1627.4 Requirements for all subgrants.

[[Page 21699]]

1627.5 Applicability of restrictions, timekeeping, and recipient 
priorities; private attorney involvement subgrants.
1627.6 Transfers to other recipients.
1627.7 Recipient policies, procedures and recordkeeping.

    Authority: 42 U.S.C. 2996g(e).


Sec.  1627.1  Purpose.

    The purpose of this part is to establish the requirements for 
subgrants of LSC funds from recipients to third parties to assist in 
the recipient's provision of legal assistance to eligible clients.


Sec.  1627.2  Definitions.

    (a) Private attorney has the meaning given that term in 45 CFR 
1614.3(i).
    (b) Programmatic means activities or functions carried out to 
provide legal assistance, as defined in Sec.  1002 of the LSC Act, 42 
U.S.C. 2996a(5). Programmatic activities do not include the provision 
of goods or services by vendors or consultants in the normal course of 
business that the recipient would not be expected to provide itself.
    (c) Recipient as used in this part means any recipient as defined 
in section 1002(6) of the Act and any grantee or contractor receiving 
funds from LSC under section 1006(a)(1)(B) of the Act.
    (d)(1) Subgrant means an award of LSC funds provided by a recipient 
to a subrecipient for the subrecipient to carry out part of the 
recipient's programmatic activities.
    (2) Except for judicare arrangements and contracts with private 
attorneys for the direct delivery of legal assistance under 45 CFR part 
1614 that exceed $25,000, subgrant does not include activities that are 
covered by a fee-for-service arrangement.
    Subrecipient means any entity receiving a subgrant. A single entity 
may be a subrecipient with respect to some activities it conducts for a 
recipient while not being a subrecipient with respect to other 
activities it conducts for a recipient.


Sec.  1627.3  Characteristics of subgrants.

    (a) In determining whether an agreement between a recipient and 
another entity should be considered a subgrant or a procurement 
contract, the substance of the relationship is more important than the 
form of the agreement. All of the characteristics listed below may not 
be present in all cases, and the recipient must use judgment in 
classifying each agreement as a subgrant or a procurement contract.
    (b) An award from a recipient to another entity will be considered 
a subgrant when the entity:
    (1) Determines who is eligible to receive legal assistance under 
the recipient's LSC grant;
    (2) Has its performance measured in relation to whether 
programmatic objectives of the LSC grant were met;
    (3) Has responsibility for programmatic decisionmaking;
    (4) Is responsible for adherence to applicable LSC program 
requirements specified in the LSC grant award; and
    (5) In accordance with its agreement, uses the LSC funds to carry 
out a program for a public purpose specified in LSC's governing 
statutes and regulations, as opposed to providing goods or services for 
the benefit of the recipient.
    (c) Any award to a third party that is determined to be a subgrant 
based on an analysis of these factors must be supported using LSC 
funds. Recipients may not use goods and services paid for in whole or 
in part with LSC funds as payment for a subgrant.


Sec.  1627.4  Requirements for all subgrants.

    (a) Corporation approval of subgrants. Recipients must submit all 
applications for subgrants to LSC in writing for prior written 
approval.
    (1) Basic Field Grants. (i) Recipients should submit applications 
for subgrants of Basic Field Grant funds along with the recipient's 
proposal for funding, including applications for renewals of funding. 
LSC will publish the requirements concerning the format and contents of 
the application annually in the Federal Register and on LSC's Web site.
    (ii) LSC will notify a recipient of its decision to approve, 
disapprove, or suggest modifications to an application for subgrant 
approval prior to, or at the same time as LSC provides notice of its 
decision with respect to the applicant's proposal for Basic Field Grant 
funding.
    (2) Special grants. (i) Recipients of special grants (e.g., 
Technology Initiative Grants, Pro Bono Innovation Fund grants, disaster 
assistance grants), should submit their subgrant applications following 
notification of approval of special grant funds. LSC will publish the 
requirements concerning the format and contents of the application 
annually in the Federal Register and on LSC's Web site.
    (ii) A subgrant application must be submitted at least 45 days in 
advance of its proposed effective date. LSC will notify the recipient 
in writing of its decision to approve, disapprove, or suggest 
modifications to the subgrant. A subgrant that is disapproved or to 
which LSC has suggested modifications may be resubmitted for approval.
    (3) Mid-year subgrant requests. A recipient may apply for prior 
approval of a subgrant outside of the periods prescribed in paragraphs 
(a)(1) and (a)(2) of this section as needed. LSC will publish the 
requirements concerning the format and contents of the application 
annually in the Federal Register and on LSC's Web site. LSC will follow 
the time periods prescribed in paragraph (a)(2)(ii) of this section to 
consider and notify a recipient of its decision to approve, disapprove, 
or suggest modifications to the subgrant.
    (4) Any subgrant not approved according to paragraphs (a)(1)-(3) of 
this section will be subject to disallowance and recovery of all funds 
expended under the subgrant.
    (5) A recipient must obtain LSC approval of any substantial change 
in the scope or objectives of a subgrant or an increase or decrease in 
the funding amount of more than 10%. Minor changes in the scope or 
objectives or changes in funding of less than 10% do not require prior 
approval, but the recipient must notify LSC of such changes in writing.
    (b) Duration of subgrant. (1) For Basic Field grants, a subgrant 
may not be for a period longer than one year. All funds unexpended at 
the end of the subgrant period will be considered part of the 
recipient's available LSC funds.
    (2) For special grants (e.g., Pro Bono Innovation Fund grants, 
Technology Initiative Grants, disaster assistance grants), a subgrant 
may not be for a period longer than the term of the grant. Absent 
written approval from LSC, all unexpended funds must be returned to LSC 
at the end of the subgrant period.
    (3) All subgrants must contain provisions for their orderly 
termination in the event that the recipient is no longer an LSC 
recipient, and for suspension of activities if the recipient's funding 
is suspended.
    (c) Recipient responsibilities. (1) Recipients must ensure that 
subrecipients comply with LSC's financial and audit provisions.
    (2) The recipient must ensure that the subrecipient properly 
spends, accounts for, and audits funds received through the subgrant.
    (3) The recipient must repay LSC for any disallowed expenditures by 
a subrecipient. Repayment is required regardless of whether the 
recipient is able to recover such expenditures from the subrecipient.
    (d) Accounting of funds. Any LSC funds paid by a recipient to a 
subrecipient through a subgrant are subject to the audit and financial 
requirements of the Audit Guide for Recipients and Auditors and the

[[Page 21700]]

Accounting Guide for LSC Recipients. Subgranted funds may be separately 
disclosed and accounted for, and reported upon in the audited financial 
statements of a recipient; or such funds may be included in a separate 
audit report of the subrecipient. The relationship between the 
recipient and subrecipient will determine the proper method of 
financial reporting following generally accepted accounting principles.
    (e) Oversight. To ensure subrecipient compliance with the LSC Act, 
LSC's appropriations statutes, Congressional restrictions having the 
force of law, and LSC's regulations, guidelines, and instructions, 
agreements between a recipient and a subrecipient must provide the same 
oversight rights for LSC with respect to subrecipients as apply to 
subrecipients.


Sec.  1627.5  Applicability of restrictions, timekeeping, and recipient 
priorities; private attorney involvement subgrants.

    (a) Applicability of restrictions. The prohibitions and 
requirements set forth in 45 CFR part 1610 apply both to the subgrant 
and to the subrecipient's non-LSC funds, except as modified by 
paragraphs (b), (c), and (d) of this section.
    (b) Priorities. Subrecipients must either:
    (1) Use the subgrant consistent with the recipient's priorities; or
    (2) Establish their own priorities for the use of the subgrant 
consistent with 45 CFR part 1620;
    (c) Timekeeping. Subrecipients must comply with 45 CFR part 1635 
regarding timekeeping for all LSC-funded subgrant activities.
    (d) PAI subgrant. (1) The prohibitions and requirements set forth 
in 45 CFR part 1610 apply only to the subgrant, when the subrecipient 
is a bar association, pro bono program, private attorney or law firm, 
or other entity that receives a subgrant for the sole purpose of 
funding private attorney involvement activities (PAI) pursuant to 45 
CFR part 1614.
    (2) Any funds used by a recipient as payment for a PAI subgrant are 
deemed LSC funds for purposes of this paragraph.


Sec.  1627.6  Subgrants to other recipients.

    (a) The requirements of Sec.  1627.4 apply to all subgrants from 
one recipient to another recipient.
    (b) The subrecipient must audit any funds provided by the recipient 
under a subgrant in its annual audit and supply a copy of this audit to 
the recipient. The recipient must either submit the relevant part of 
this audit with its next annual audit or, if an audit has been recently 
submitted, submit it as an addendum to that recently submitted audit.
    (c) In addition to the provisions of Sec.  1627.4(c)(3), LSC may 
hold the recipient responsible for any disallowed expenditures of 
subgrant funds. Thus, LSC may recover all of the disallowed costs from 
either the recipient or the subrecipient or may divide the recovery 
between the two. LSC's total recovery may not exceed the amount of 
expenditures disallowed.
    (d) Funds received by a recipient from other recipients in the form 
of fees and dues shall be accounted for and included in the annual 
audit of the recipient receiving these funds as LSC funds.


Sec.  1627.7  Recipient policies, procedures and recordkeeping.

    Each recipient must adopt written policies and procedures to guide 
its staff in complying with this part and must maintain records 
sufficient to document the recipient's compliance with this part.

PART 1630--COST STANDARDS AND PROCEDURES

0
10. In newly transferred and redesignated Sec.  1630.14, revise the 
section heading to read as follows:


Sec.  1630.14  Membership fees or dues.

0
11. In newly transferred and redesignated Sec.  1630.15, revise the 
section heading to read as follows:


Sec.  1630.15  Contributions.

0
12. In newly transferred and redesignated Sec.  1630.16, revise the 
section heading to read as follows:


Sec.  1630.16  Tax sheltered annuities, retirement accounts, and 
pensions.

    Dated: April 14, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-08951 Filed 4-17-15; 8:45 am]
 BILLING CODE 7050-01-P