[Federal Register Volume 83, Number 106 (Friday, June 1, 2018)]
[Rules and Regulations]
[Pages 25349-25361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11806]



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 Rules and Regulations
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 This section of the FEDERAL REGISTER contains regulatory documents 
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  Federal Register / Vol. 83, No. 106 / Friday, June 1, 2018 / Rules 
and Regulations  

[[Page 25349]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210 and 225

[FNS-2013-0026]
RIN 0584-AD84


Simplified Cost Accounting and Other Actions To Reduce Paperwork 
in the Summer Food Service Program

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Final rule.

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

SUMMARY: This final rule amends the Summer Food Service Program (SFSP) 
regulations to incorporate statutory changes mandated by Section 738 of 
the Consolidated Appropriations Act, 2008, which extends simplified 
cost accounting and reporting procedures to SFSP sponsors in all 
States, and eliminates the cost comparison requirements for determining 
payments to sponsors. In addition, this rule makes several 
discretionary changes to improve administrative efficiency and reduce 
paperwork in the management of the SFSP. Finally, this rule amends the 
National School Lunch Program regulations to create consistency among 
the Child Nutrition Programs with regard to notice procedures. The 
intended effect of this rule is to simplify and streamline Program 
administration while ensuring Program integrity.

DATES: 
    Effective Date: This rule is effective July 31, 2018.
    Implementation Date: State agencies and Summer Food Service Program 
sponsors must implement the provisions of this rule no later than 
January 1, 2019.

FOR FURTHER INFORMATION CONTACT: Andrea Farmer, (703) 305-2470.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Summer Food Service Program (SFSP) is authorized under Section 
13 of the Richard B. Russell National School Lunch Act (NSLA), 42 
U.S.C. 1761. The primary purpose of the Program is to provide free, 
nutritious meals to children in low-income areas during periods when 
schools are not in session. FNS has made strides to ensure that those 
in need have food to eat and to streamline Program operations. SFSP 
serves not only the neediest children, but also functions as an 
opportunity for local leaders and business owners to serve their 
community. Summer Meal Programs can be operated in a variety of 
settings and should focus on the needs of diverse communities. Because 
of this, the types of participating Program sponsors vary widely--from 
Federal agencies, to local governments, school districts, and small 
nonprofit community organizations.
    This final rule codifies the nondiscretionary simplified cost 
accounting and reporting procedures established in the Consolidated 
Appropriations Act, 2008 (Pub. L. 110-161). These simplified cost 
accounting procedures were originally authorized in the Consolidated 
Appropriations Act of 2001 and were piloted in fourteen states from 
2001-2004. Section 18(f) of the Child Nutrition and WIC Reauthorization 
Act of 2004 (Pub. L. 108-265) made the simplified cost accounting 
procedures permanent for eligible States. Six new States in addition to 
the original fourteen States were determined eligible. The Consolidated 
Appropriations Act, 2008 extended the simplified procedures to all 
sponsors in all States.
    This final rule also makes discretionary changes to the SFSP 
regulations to improve management of the Program and reduce paperwork 
requirements for program operators. The purpose of the simplified 
procedures is to facilitate and encourage participation by eligible 
sponsors, in turn providing access to those in need in the summer 
months and other times during the year when they do not have access to 
school meals.
    The regulatory changes to the reimbursement procedures will align 
Program regulations with current policy FNS issued in 2008 to implement 
statutory changes, SFSP 01-2008, Nationwide Expansion of Summer Food 
Service Program Simplified Cost Accounting Procedures, January 2, 2008. 
This policy guidance implemented the elimination of the cost comparison 
to determine reimbursements, the establishment of a reimbursement rate 
of ``meals times rate'' without comparison to actual or budgeted costs, 
and the requirement that sponsors maintain records of their costs for 
State agency review, rather than report their costs to the State 
agency.
    The intent of this rulemaking is to simplify the SFSP for State 
agencies, sponsors, and site operators while providing a quality meal 
service to children and maintaining integrity of the Program. The 
proposed rule was published in the Federal Register (78 FR 41857) on 
July 12, 2013, seeking to codify changes to cost accounting practices 
as well as make changes to improve the efficiency and effectiveness of 
the Program and reduce administrative paperwork. The majority of 
provisions in the proposed rule codify the existing policies and 
guidance already being implemented in the SFSP nationwide:
     Extend simplified cost accounting and reporting procedures 
to SFSP sponsors in all States and eliminate the cost comparison 
requirements for determining payments to sponsors.
     Require sponsors to utilize unused reimbursement to 
improve the Program, or pay allowable costs of other Child Nutrition 
Programs operated by the sponsor.
     Provide State agencies the flexibility to exempt school 
food authority sponsors from submitting a separate budget when applying 
to operate SFSP, provided that operation of SFSP was included in their 
annual budget for operation of the National School Lunch Program.
     Require sponsors to maintain documentation confirming the 
operation of a nonprofit food service.
     Establish the responsibilities of State agencies when 
reviewing a sponsor's operation under simplified procedures, including 
suggestions for monitoring of the nonprofit food service.
     Encourage State agencies to provide technical assistance 
to sponsors to utilize unused reimbursements to improve the meal 
service, improve Program management, or pay allowable costs of other 
Child Nutrition Programs

[[Page 25350]]

operated by the sponsor if significant unused reimbursements are found 
during a sponsor review.
     Allow more alternatives for sponsors to combine claims for 
reimbursement.
     Allow sponsors to renew contracts for up to four years, to 
reduce paperwork and increase the sponsors' negotiating power to get 
higher quality meals at a better price.
     Clarify the administrative oversight role of sponsors at 
meal service sites.
     Provide consistent notification and simplified acquisition 
threshold requirements across Child Nutrition Programs.

II. Public Comments and FNS Response

    FNS appreciates the insightful comments provided by stakeholders 
and the public. Twenty-two comments were received from a cross section 
of SFSP administrators, SFSP operators, and advocates. Commenters 
included representatives of State Departments of Education, food banks, 
and nonprofit organizations supporting anti-hunger efforts, summer 
learning, and afterschool programs. Seven State administering agencies, 
four SFSP sponsors, and 11 advocacy organizations submitted comments on 
the proposed rule. It should be noted that 22 comments represent a very 
small portion of the vast number of SFSP stakeholders. To view all of 
the public comments on the proposed rule, go to www.regulations.gov and 
search for public submissions under docket number FNS-2013-0026.
    Of the 22 comments received, 19 voiced general support for the 
implementation of the simplified cost accounting amendments, the 
clarification of the sponsor's responsibility for oversight at meal 
sites, and the amendment of the threshold for small purchases, and 
offered thoughtful suggestions for improvements to strengthen the rule 
and provide more clarity on certain sections.
    Some commenters specifically voiced concern regarding the proposed 
changes to the collection of excess funds, approval of applications, 
review of nutrition quality, and monitoring of sponsor budgets and 
nonprofit food service. These commenters expressed concern that the 
proposed changes could compel State agencies to reinstate 
administrative practices that had been required for cost accounting, 
prior to the 2008 law and publication of subsequent implementing 
guidance. Additionally, a few commenters expressed concern that several 
of the provisions regarding State agency monitoring would create undue 
burden on the administering State agencies and sponsors and might 
discourage participation. Several commenters also requested clarity and 
guidance on a number of the provisions, particularly State agency 
monitoring of sponsors and operation of a nonprofit food service.
    The following is a summary of the public comments by provision. In 
some instances, several provisions are grouped together under the same 
topic area because the provisions and comments received are related:

a. Simplified Cost Accounting and Reporting

7 CFR 225.9(c), 7 CFR 225.9(d)(7), 7 CFR 225.9(d)(8)
    Proposed Rule: The proposed rule would codify the practice of using 
a combined operating and administrative reimbursement of ``meals times 
rates'' for all sponsors, and eliminate cost comparison requirements at 
7 CFR 225.9(d)(7) and (8). The proposed rule would also streamline the 
process for calculating advances under 7 CFR 225.9(c) by no longer 
differentiating between operating and administrative advances. As 
required by legislative action, FNS updated its policy guidance to 
provide for implementation of a combined reimbursement nationwide.
    Regulations at 7 CFR 225.9(c) provide a framework for advancing 
payments to sponsors, while 7 CFR 225.9(d)(7) and (8) require State 
agencies to reimburse participating sponsors on a per-meal basis for 
meals meeting Program requirements. Prior to the implementation of the 
pilot and the subsequent extension of the simplified cost accounting 
procedures to all States and sponsors, sponsors received reimbursement 
separately for both operating costs and administrative costs.
    Comments: There was unanimous support from all commenters who 
commented on these specific provisions. Several of the commenters 
offered recommendations to create more flexibility within this 
provision by allowing State agencies to determine the percentage of the 
advance that is given to sponsors. Other commenters suggested 
additional training for school food authorities (SFA).
    FNS Response: The changes to 7 CFR 225.9(d)(7) and (8) to eliminate 
cost comparison requirements, as proposed, are finalized in this rule. 
In response to commenters' request for more flexibility for State 
agencies to determine the percentage of advance payments, we must 
clarify that FNS does not have the statutory authority to amend those 
requirements. The requirements to provide service institutions with 
advance payments as well as the determined percentages of advance 
payments are codified at Section 13(e)(1) and (2) of the NSLA and do 
not provide the discretion FNS would need to amend the requirements for 
advance payments. However, the regulations at 7 CFR 225.9(c)(3) (this 
rulemaking amends citation to 7 CFR 225.9(c)(2)) do provide some 
flexibility to the State agency to ``make the best possible estimate 
based on the sponsor's request and any other available data'' when 
determining the amount of the advanced payment. State agencies should 
work with sponsors, especially those sponsors that are operating the 
Program for the first time, as they develop their request for advance 
payments.
    In current regulations, State agencies already have the discretion 
to require more training for SFAs. Therefore, FNS maintains that the 
proposed language provides State agencies with the flexibility to 
require additional training. However, in order to provide clarity, FNS 
intends to issue additional guidance on administration of advances as 
deemed necessary.
    Accordingly, the changes to 7 CFR 225.9(d)(7) and (8) and (c) as 
proposed are finalized in this rule. They eliminate the cost comparison 
requirements, combine operating and administrative reimbursements into 
a single ``meals times rates'' reimbursement, and combine operating and 
administrative advances. In addition, references to operating and 
administrative costs were removed throughout 7 CFR 225.9.

b. Budget Submissions

7 CFR 225.6(b)(7)
    Proposed Rule: The proposed rule would amend 7 CFR 225.6(b)(7) to 
allow State agencies to exempt SFA sponsors that participated in the 
SFSP in the previous year and had no documented serious problems 
managing the SFSP or National School Lunch Program (NSLP) from the 
annual budget submission requirement.
    Prior to publication of the proposed rule, FNS issued policy 
guidance (SFSP 01-2008, Nationwide Expansion of Summer Food Service 
Program Simplified Cost Accounting Procedures, January 2, 2008 and SFSP 
03-2008, Simplified Procedures in the Summer Food Service Program, 
February 14, 2008) that provided State agencies with the flexibility to 
exempt certain sponsors from the requirement to submit budgets annually 
with their applications for participation as specified in 7 CFR 
225.6(c)(2)(ii)(B) and (c)(3)(ii)(B) and to receive start-up or

[[Page 25351]]

advance payments as specified in 7 CFR 225.9(a) and (c)(2)(i).
    The proposed changes would have brought the regulations in line 
with exemptions currently available nationwide.
    Comments: Of the five unique comments received on this provision, 
two supported, one opposed, and two provided recommendations for 
clarifying and streamlining the process to reduce administrative burden 
on sponsors. One commenter recommended allowing State agencies to 
exempt SFA sponsors, who participated successfully in any Child 
Nutrition Program (including NSLP, School Breakfast Program (SBP), and 
Seamless Summer Option (SSO)) in the prior year, from the annual budget 
submission requirement. The commenter that opposed this provision 
expressed that ``successful'' was too vague a term and requested 
additional criteria for identifying a successful operation. The 
opposing commenter also identified the budget submission as a necessity 
in order to determine the nonprofit food service status of sponsors.
    FNS Response: The proposed changes to the budget submission process 
were intended to align regulations with implemented national 
flexibility to allow States to exempt certain sponsors from the 
requirement. This flexibility dates back to the original simplified 
cost accounting pilot first started in 2001. However, these provisions 
are not consistent with statutory changes made in the Healthy, Hunger-
Free Kids Act of 2010 (Pub. L. 111-296). Amendments to Section 13(b)(3) 
of the NSLA revised budget submission requirements to specify that 
``when applying for participation in the program, and not less 
frequently than annually thereafter, each service institution shall 
submit a complete budget for administrative costs related to the 
program, which shall be subject to approval by the State.'' Based on 
the legislative amendments to Section 13 of the NSLA, all sponsors, 
without exception, applying to participate must submit a complete 
budget for administrative costs related to the Program.
    FNS has received consistent feedback from stakeholders that budget 
submissions are a useful tool for maintaining Program integrity. The 
budget review process provides the opportunity to identify unallowable 
costs and helps ensure that funds are used only for allowable costs. 
Maintaining a requirement for State agencies to annually review budgets 
allows SFA sponsors to receive important feedback on the allowability 
of planned expenditures.
    However, FNS recognizes that submitting a separate budget for SFSP 
would be duplicative for SFAs that have already submitted budget 
information as part of their operation of another Child Nutrition 
Program. In an effort to reduce administrative and paperwork burden, 
State agencies may exempt SFAs applying to operate the SFSP from 
submitting a separate budget to the State agency, provided that 
operation of the SFSP is included in the annual budget submitted for 
the NSLP.
    Accordingly, the proposed changes to budget submission requirements 
are not included in the final rule and the requirement at 7 CFR 
225.6(b)(7) that sponsors must submit budgets when they apply for 
participation in the SFSP is maintained. In addition, the final rule 
adds at 7 CFR 225.6(b)(7) State agency discretion to exempt SFAs from 
submitting a separate budget provided that operation of the SFSP is 
included in the annual budget submitted for the NSLP.

c. Maintaining a Nonprofit Food Service

7 CFR 225.12(a), 7 CFR 225.15(a), 7 CFR 225.15(c)
    The proposed rule touched on several sections of the regulations 
relating to maintenance of a nonprofit food service, including sections 
on claims against sponsors and management responsibilities of sponsors.
    Proposed Rule: The proposed rule would amend 7 CFR 225.15(a)(4) to 
require sponsors to maintain documentation confirming the operation of 
a nonprofit food service. The proposed rule would also clarify 7 CFR 
225.12(a) and 225.15(c)(1), which restrict the use of SFSP 
reimbursements on allowable costs only and require that sponsors' 
records include all costs associated with the meal service and document 
that all costs are allowable.
    Regulations found at 7 CFR 225.6(e)(1) require sponsors to maintain 
a nonprofit food service. Regulations at 7 CFR 225.12(a) and 225.15(a) 
and (c) outline the requirements for maintaining a nonprofit food 
service in the SFSP. Sponsors that operate multiple Child Nutrition 
Programs on a year-round basis are not required to maintain a separate 
nonprofit food service account for the SFSP. The Consolidated 
Appropriations Act of 2008, which expanded the simplified cost 
accounting procedures, also amended statutory requirements for 
maintaining a nonprofit food service. FNS provided guidance on what is 
required to document the maintenance of a nonprofit food service under 
the legislative changes via policy memorandum (SFSP 01-2008, Nationwide 
Expansion of Summer Food Service Program Simplified Cost Accounting 
Procedures, January 2, 2008).
    Comments: FNS received eight unique comments on the topic of 
maintaining a nonprofit food service. Three of the eight comments 
opposed the provision, two proposed recommendations for clarity, and 
one expressed concern that this provision could eventually result in 
USDA requiring end-of-year operating statements. Commenters expressed 
concern that FNS was establishing a requirement that sponsors report 
costs to the State agency on a routine or annual basis. Similarly, 
commenters recommended clarifying the language to ensure that sponsors 
do not have to report their costs to the State agency on an annual 
basis. Commenters also recommended codifying the language used in the 
January 2008 guidance, which said that sponsors ``must be able to 
document'' their nonprofit food service.
    FNS Response: The intent of this provision is consistent with the 
January 2008 guidance, which requires that sponsors be able to document 
that they have maintained a nonprofit food service. It is not the 
intent of this provision to require sponsors to submit cost records to 
the State agency on a routine or annual basis. As noted in that 
guidance, sponsors may meet this requirement by retaining records of 
all revenues received and expenses paid from the nonprofit food service 
account. This requirement does not include submitting records to the 
State agency on a routine or annual basis. However, FNS expects that 
sponsors will maintain documentation to support their operation of a 
nonprofit food service to ensure the integrity of the Program. This 
documentation permits the sponsor, reviewers, and auditors to evaluate 
and verify during a review that the SFSP was operated on a nonprofit 
basis. State agencies are responsible for informing sponsors that 
expenses paid from the nonprofit food service account must be allowable 
costs that are necessary, reasonable, and properly documented. 
Accordingly, FNS will amend 7 CFR 225.12(a) and 225.15(a)(4) and (c)(1) 
to retain the language to maintain documentation of a nonprofit service 
account in the final rule as it was proposed.

[[Page 25352]]

d. Collection of Excess Funds

7 CFR 225.9
    Proposed Rule: As proposed, this provision would add a paragraph to 
7 CFR 225.9 to require sponsors to use ``excess funds'' (reimbursements 
exceeding allowable costs) to improve the meal service or management of 
the program. The provision also would allow sponsors to use remaining 
funds at the end of the Program year to be used to pay allowable costs 
of other Child Nutrition Programs.
    The provision went further to require excess funds to be collected 
from sponsors that do not operate at least one other Child Nutrition 
Program and do not plan to participate in the SFSP in the following 
year. At the time the proposed rule was published, the only 
requirements for collection of excess funds in SFSP regulations were 
found at 7 CFR 225.9(c)(7) and referred to collection of funds in 
excess of advanced payments.
    Comments: Of the six unique comments received, two opposed the 
provision, two offered recommendations, one expressed concern, and one 
supported the changes. Those who opposed the provision stated that it 
would increase administrative burden on the States and sponsors. In 
addition, commenters believed that collecting excess funds would make 
it difficult for sponsors to improve Program operations and would 
discourage participation. Ten commenters noted that the proposed 
changes were not supported by the Consolidated Appropriations Act of 
2008 (Pub. L. 110-161), which extended the simplified cost accounting 
procedures to all sponsors and therefore entitles all sponsors to the 
maximum reimbursement, as long as the sponsor is meeting the program 
requirements, including serving meals that meet the Federal nutrition 
standards.
    FNS Response: FNS appreciates the comments received on the 
effectiveness of collecting excess funds and challenges associated with 
the implementation of this provision. Upon further review, FNS has 
determined that the proposed rule and guidance issued following the 
publication of the proposed rule did not accurately represent the 
intent of the provision. The regulatory language in the proposed rule, 
which would have required the State agency to collect ``excess funds'' 
(meaning both reimbursements in excess of costs and advance payments in 
excess of reimbursement) at the end of each summer of Program 
operations, was overly broad and could create undue burden on both the 
State agency and sponsors. Additionally, by preventing sponsors from 
retaining funds at the end of Program operations, sponsors would be 
unable to take necessary steps between operating times to improve meal 
service during operation. FNS also recognizes the need for clarity when 
discussing excess funds and seeks to alleviate the confusion caused by 
the proposed rule and subsequent guidance.
    Under the simplified cost accounting procedures, FNS issued 
guidance on how to manage excess funds in the SFSP. However, FNS did 
not clearly define the term ``excess funds.'' There is an important 
distinction between excess funds and unused reimbursement that needs to 
be explained.
    FNS defines excess funds, for Program purposes, as the difference 
between any advance funding and reimbursement funding, when advance 
funds received by a sponsor are greater than the reimbursement amount 
earned by a sponsor. This distinction is statutorily established in 
Section 13(e)(1) of the NSLA, 42 U.S.C. 1761(e)(1), which states that 
``Not later than June 1, July 15, and August 15 of each year, or, in 
the case of service institutions that operate under a continuous school 
calendar, the first day of each month of operation, the State shall 
forward advance program payments to each service institution. . .'' 
Further, in Section 13(e)(2), the NSLA provides that, ``[p]rogram 
payments advanced to service institutions that are not subsequently 
deducted from a valid claim for reimbursement shall be repaid upon 
demand by the State. Any prior payment that is under dispute may be 
subtracted from an advance program payment.'' This requirement is also 
codified in current regulations at 7 CFR 225.9(c)(7).
    While there is, similarly, a statutory directive in Section 
13(e)(2) of the NSLA requiring the collection of excess funds, as 
described above, there is no such statutory directive, or intent, to 
collect unused reimbursements.
    So, an example of excess funds would be if a sponsor requested 
$1,000 in advance funding and only claimed $900 in meal reimbursement; 
the sponsor would have $100 in excess funds that cannot be used in 
other Child Nutrition Programs. The State agency has the statutory and 
regulatory authority to recover the $100 in excess funds at the end of 
Program operations for which the advance was paid.
    In contrast, FNS defines unused reimbursements differently than 
excess funds. Unused reimbursements are the difference between the 
amount claimed for reimbursement and actual costs, should reimbursement 
exceed costs. For example, if a sponsor received $1,000 in meal claim 
reimbursement but only spent $900 on actual costs to operate the 
Program, the sponsor would have $100 in unused reimbursement.
    FNS expects States and sponsors to adequately manage resources, so 
that a well-run, quality summer meal service does not result in a 
significant amount of unused reimbursement. It is incumbent on sponsors 
and State agencies to monitor program operations throughout the summer 
and for sponsors to make adjustments to ensure that quality meals are 
being served. However, should a sponsor have unspent reimbursement, 
this remaining amount must be kept in a nonprofit food service account, 
as required of all Child Nutrition Programs. These funds must benefit 
the operation of another Child Nutrition Program operated by the 
sponsor or SFSP operations operated by the sponsor the following 
Program year. If a sponsor does not return to participate in SFSP and 
does not operate any other Child Nutrition Programs, the sponsor is not 
required to return the unused reimbursement. As noted by commenters, 
this is in keeping with the intent of the statute which entitles all 
sponsors to the maximum reimbursement, as long as the sponsor is 
meeting the program requirements.
    Additionally, in order to address the issue of treating sponsors 
remaining in the Program differently than sponsors not intending to 
participate in the following year, FNS would like to highlight the 
regulatory requirements at 7 CFR 225.6(e)(1)(i) that sponsors must 
enter into a permanent agreement with the State agency, in which they 
must agree to operate a nonprofit food service during the period 
specified. Therefore, those sponsors remaining in the Program must 
continue to operate a nonprofit food service in order to be in 
compliance with regulations and not be in violation of the Sponsor-
State agreement. This means that should a sponsor have unused 
reimbursement, it must be used to improve the Program or for allowable 
costs in other Child Nutrition Programs operated by the sponsor. In 
contrast, a sponsor that chooses not participate in the Program no 
longer has an agreement with the State agency and is not required to 
operate a nonprofit food service.
    Since 2008, consistent with statutory direction in Section 13 of 
the NSLA, FNS has made the distinction between excess funds and unused 
reimbursement in order to protect the integrity of program operations 
by ensuring that sponsors are only permitted to retain funds that are

[[Page 25353]]

payment for meals served to children through the SFSP. It is important 
to remember that under simplified cost accounting procedures, unused 
reimbursements are not returned to the State agency unless unallowable 
meals were claimed for reimbursement. State agencies are always 
permitted to conduct closeout audits or reviews to determine if all 
meals claimed were valid and that Program funds were spent on allowable 
costs only.
    FNS encourages this oversight activity, particularly when the State 
agency has concerns about how the sponsor operated the Program.
    If unallowable costs are identified during a closeout review or 
audit, the State agency should follow appropriate audit resolution 
procedures, although no funds would be recovered. If a sponsor will not 
operate SFSP in the future, but currently operates another Child 
Nutrition Program, the sponsor would be required to restore the 
misspent SFSP funds to its nonprofit food service account. In cases 
where the organization does not intend to participate in the SFSP in 
the future and does not currently participate in any other Child 
Nutrition Programs, the State agency should notify the sponsor of the 
findings and retain documentation of the findings on file. If the 
organization applies for participation in any Child Nutrition Program 
in the future, the State agency should ensure the organization has 
proper controls in place to prevent a recurrence of the improper 
expenditures of nonprofit food service account funds. This is 
consistent with longstanding Department policy, issued during the 
implementation of the simplified cost accounting procedures (SFSP 01-
2008, Nationwide Expansion of Summer Food Service Program Simplified 
Cost Accounting Procedures, January 2, 2008).
    Therefore, the final rule retains the current requirement that 
excess funds, defined as the difference between any advance funding and 
reimbursement funding, when advance funds received by a sponsor are 
greater than the reimbursement amount earned by a sponsor, must be 
returned to the State agency at the end of program operations, even if 
the sponsor plans to return to the Program the following year. The 
final rule additionally clarifies that unused reimbursement may be 
retained by the sponsor. If the sponsor plans to return to the Program 
the following year, the unused reimbursement must be maintained in the 
sponsor's nonprofit food service account and must be put toward the 
operation of another Child Nutrition Program or for SFSP operations the 
following summer. FNS has issued guidance instructing sponsors to 
utilize unused reimbursement for the improvement of the meal service or 
management of the Program or to use the funds for allowable costs in 
other Child Nutrition Programs.
    Accordingly, this final rule adds definitions of ``Excess funds'' 
and ``Unused reimbursement'' under 7 CFR 225.2 and clarifies what 
sponsors should do with unused reimbursement under a new paragraph at 7 
CFR 225.9(g). The final rule will retain the requirement for sponsors 
to utilize unused reimbursement to improve the Program, or for 
allowable costs in other Child Nutrition Programs and will not codify 
the proposed requirement to collect unused reimbursement from sponsors.

e. State Agency Monitoring

7 CFR 225.7
    In order to maintain the integrity of Program operations, it is 
critical that State agencies and sponsors practice sound Program 
management. The proposed rule would change several provisions to 
provide additional requirements that would ensure thorough reviews of 
program operations. These changes expanded upon requirements for State 
agencies to establish financial management systems and standards for 
sponsor recordkeeping found at 7 CFR 225.7(d). In general, one 
commenter opposed the changes and one offered a recommendation. The 
commenter who opposed the provision believed that the procedures were 
too prescriptive and would increase the administrative burden for both 
sponsors and States. Another commenter offered the recommendation to 
provide additional funding and training to help States develop 
additional systems needed to support this requirement. Several 
commenters offered more detailed comments on the specific provisions, 
as discussed below.
7 CFR 225.7(d)(2)(iii)(A)
    Proposed Rule: The proposed rule would require State agencies to 
determine if a sponsor provides a nutritious, high quality food 
service.
    Comments: Two commenters supported the provision, while several 
others offered recommendations to provide additional guidance on what 
defines a nutritious, high quality food service.
    FNS Response: FNS agrees with commenters that including a review of 
``nutritious, high quality food'' is vague and should not be codified 
in the regulations. FNS has issued additional guidance on operating a 
high quality meal service to ensure that sponsors are providing the 
best possible meals to children and that State agencies have the 
resources to support sponsors in serving high quality meals following 
the publication of this rule. FNS encourages State agencies and 
sponsors to review the overall quality of the meal service. 
Accordingly, this provision is absent from the final rule.
7 CFR 225.7(d)(2)(iii)(B)
    Proposed Rule: The proposed rule would have required State agencies 
to determine if expenditures are allowable and consistent with FNS 
Instructions and guidance.
    Comments: Two commenters offered support and requested additional 
guidance to define what is allowable.
    FNS Response: FNS agrees with commenters that additional guidance 
is necessary for this provision. FNS has issued Instruction 796-4 that 
clearly outlines what costs are considered allowable in the SFSP. 
Accordingly, FNS has codified at 7 CFR 225.7(d)(2)(iii)(A) that the 
State agency should determine if expenditures are allowable and 
consistent with FNS Instructions and guidance and all funds accruing to 
the food service are properly identified and recorded as food service 
revenue.
7 CFR 225.7(d)(2)(iii)(C)
    Proposed Rule: The proposed rule would require State agencies to 
determine if expenditures are consistent with expenditures of 
comparable sponsors.
    Comments: Three State agencies opposed the part of the provision 
that requires a comparison to similar sponsors, saying that it is not a 
reasonable request for State agencies as they do not have the resources 
to conduct such a comparison and it would be technically difficult for 
States to accomplish.
    FNS Response: FNS recognizes that comparing the expenditures of 
similar sponsors would be unnecessarily burdensome on the State 
agencies. State agencies should be aware of what reasonable costs of 
similarly sized sponsoring organizations would be; however, a formal 
comparison is not required. Accordingly, FNS has clarified in the 
codified language at 7 CFR 225.7(d)(2)(iii)(B) that State agencies 
should determine if expenditures are consistent with budgeted costs and 
previous year's expenditures.

[[Page 25354]]

7 CFR 225.7(d)(2)(iii)(D)
    Proposed Rule: The proposed rule would require State agencies to 
determine if sponsor reimbursements have resulted in accumulation of 
net cash resources as defined in 7 CFR 225.7(f).
    Comments: One commenter expressed support but also concern for how 
State agencies would be able to distinguish the difference when 
evaluating combined accounts.
    FNS Response: State agencies must establish a system for monitoring 
and reviewing a sponsor's nonprofit food service accounts to ensure 
that the sponsor has not accumulated net cash resources over the limits 
as defined in 7 CFR 225.7(f). FNS expects that this knowledge will be 
developed through the review process. As mentioned in the discussion on 
excess funds and unused reimbursement, accumulations of net cash 
resources should be closely monitored by sponsors and State agencies to 
ensure resources are being appropriately managed. Accordingly, FNS has 
codified at 7 CFR 225.7(d)(2)(iii)(C) that State agencies should 
determine that reimbursements have not resulted in accumulation of net 
cash resources.
7 CFR 225.7(d)(2)(iii)(E)
    Proposed Rule: The proposed rule would require State agencies to 
determine if the level of administrative spending is reasonable.
    Comments: One commenter recommended providing specific guidance for 
determining when spending is reasonable. Another commenter opposed the 
provision, saying that it goes against the elimination of the 
distinction between operating and administrative reimbursements and 
would place an administrative burden on State agencies.
    FNS Response: State agencies should be able to determine what is 
reasonable spending and ensure that sponsors are using reimbursements 
for administrative costs in a manner that is consistent with the 
operation of a nonprofit food service. Accordingly, FNS retains the 
proposed provision and codifies it at 7 CFR 225.7(d)(2)(iii)(D).
7 CFR 225.7(d)(2)(iii)(F)
    Proposed Rule: The proposed rule would require State agencies to 
determine if there are any other issues identified by reviewers and 
whether these issues are being managed appropriately.
    Comments: No commenters responded to this provision.
    FNS Response: As FNS amended the final rule to put forth a list of 
recommended conditions for State agencies to review, including other 
identified issues became redundant. Accordingly, this provision is 
absent from the final rule.
    In summary, accordingly, the final rule removes the requirements at 
7 CFR 225.7(d)(2)(iii) that the State agency review the specific 
aspects of sponsor operations listed in the regulatory text and instead 
provides a list of Program management issues for potential review by 
the State agency at 7 CFR 225.7(d)(2)(iii)(A) through (D).
7 CFR 225.7(f)
    Proposed Rule: The proposed rule would have added additional 
requirements at 7 CFR 225.7(f) that the State must establish a system 
to monitor and review the sponsor's nonprofit food service to ensure 
that Program reimbursement funds are being used solely to conduct the 
food service operation. Under the proposed rule, the State must also 
ensure that sponsors do not have net cash resources totaling more than 
three months' average expenditures in their nonprofit food service 
accounts.
    The addition of Sec.  225.7(f), as proposed, would have codified 
that certain corrective actions may be necessary to improve food 
service quality under the following conditions:
     The sponsor's net cash resources exceed three months' 
average expenditures for the sponsor's nonprofit food service or such 
other amount as may be approved in accordance with the paragraph;
     The ratio of administrative to operational costs (as 
defined in 7 CFR 225.2) is high as compared to similar sponsors;
     There is significant use of alternative funding for food 
and/or other costs; or
     A significant portion of the food served is privately 
donated or purchased at a very low price.
    Comments: On the criteria required for State agencies to review 
sponsor nonprofit food service, several commenters opposed portions of 
this section, specifically the requirement to use the three month cap 
on cash resources, the comparison between sponsors, the ratio of 
administrative to operating costs, the significant use of alternative 
funds to determine the quality of the nonprofit food service and the 
requirement for States to take corrective action should sponsors fall 
under any of these indicators. Commenters preferred these indicators to 
be considered but not required.
    FNS Response: FNS appreciates the responses from various 
stakeholders expressing concern about the proposed changes to require 
corrective action to improve food service quality under prescribed 
conditions. While the intent of this rule is to streamline Program 
operations and decrease the administrative burden for both States and 
sponsors, FNS must also ensure the integrity of the Program. FNS agrees 
with commenters that due to the short duration of summer meal programs, 
a net cash resource limit of three months' average expenditures may be 
considered too high. FNS recognizes that the prescriptive language 
proposed could add increased burden or unfairly target certain 
organizations that run quality programs but still meet the conditions 
specified in the proposed rule. For example, a food pantry might have a 
higher ratio of administrative costs to operating costs and have 
significant use of alternative funds. Under the proposed rule, the food 
pantry might have been subject to a higher level of scrutiny based on 
the criteria set forth, despite operating a high quality meal service.
    Accordingly, due to the short duration of the Program, the final 
rule includes a limit of one month's net cash resources for sponsors 
that operate during the summer months but retains the three month limit 
for sponsors that operate Child Nutrition Programs year round at 7 CFR 
225.7(f). Additionally, the final rule retains the conditions State 
agencies should review, as proposed, but rather than requiring a review 
of these conditions, encourages States to use these conditions as 
indicators of potential Program mismanagement.
7 CFR 225.11(f)(1)
    Proposed Rule: The proposed rule sought to add to requirements at 7 
CFR 225.11(f)(1) to direct the State agency to require the sponsor to 
implement appropriate corrective action if it is determined during a 
review that the sponsor was not providing a high quality meal service. 
The proposed rule outlined in the proposed changes to 7 CFR 225.7(f) 
how the State agency would make the determination if corrective action 
was necessary.
    Comments: In response to the additional requirement for State 
agencies to require corrective action to improve the meal service if a 
sponsor is found to be operating a program with poor quality food 
service, six commenters either opposed or recommended additional 
guidance. Of the six commenters, four State agencies expressed concern 
that the guidance was too vague and they would not be able to 
effectively determine what constitutes a poor quality meal service.

[[Page 25355]]

    FNS Response: FNS agrees with commenters that requiring corrective 
action for poor quality meal service is too vague and requires more 
guidance. Accordingly, the final rule removes the requirement for 
corrective action if a sponsor is determined to be operating a poor 
quality meal service and is operating below the reimbursement level, 
and instead adds a new paragraph at 7 CFR 225.11(g) that recommends 
that States provide technical assistance to sponsors in these 
circumstances. However, if State agencies observe violations during a 
review, they should act immediately, due to the short duration of 
summer program operations.

f. Small Purchase Procedures

7 CFR 225.15(m)
    Proposed Rule: The proposed change would remove reference to the 
outdated small purchase threshold (referred to as simplified 
acquisition threshold in 2 CFR part 200 and throughout the remainder of 
this final rule) of $10,000 and allow State and local agencies to use 
the simplified acquisition threshold for small purchases up to the 
threshold set by 2 CFR part 200.
    Comments: FNS received five unique comments. Of these, three 
supported the provision, one commenter partially supported and 
partially opposed the provision, and one commenter offered a 
recommendation for improving the bid bond requirements. Commenters 
generally supported aligning the requirements for small purchase 
procedures with those already at 2 CFR part 200. One State agency 
opposed the requirement that all bids be submitted to the State agency 
for approval before acceptance, and that these bids are responded to 
within five working days of receipt, claiming that this would create a 
burden on the State agency.
    Commenters also expressed concern that the bid bond requirements 
should be left to the discretion of the sponsor, as the new 
requirements might pass additional costs from Food Service Management 
Companies (FSMC) to the sponsor.
    FNS Response: FNS appreciates the support for aligning the 
requirements for small purchase procedures with those already in 
Federal Regulations. The purpose of this provision is to align SFSP 
regulations with broader Federal requirements. Aligning the requirement 
with 2 CFR part 200 allows for periodic adjustments in the dollar value 
when the periodic adjustment occurs and relieves FNS of the requirement 
to change the dollar amount in the Program regulations. Some commenters 
provided responses to portions of the provisions that did not contain 
proposed changes, specifically the comments related to the State agency 
responsibilities regarding bids and sponsor discretion in determining 
the amount of the bid bond. While FNS appreciates these comments, this 
final rule will only address the alignment of the simplified 
acquisition threshold. Accordingly, the final rule aligns regulations 
at 7 CFR 225.15(m)(4) through (6) with the simplified acquisition 
threshold with current Federal regulations at 2 CFR part 200.

g. FSMCs and Procurement Standards

7 CFR 225.6(h)(2), 7 CFR 225.6(h)(7)
    Proposed Rule: The proposed rule sought to remove the existing 
limit of $10,000 in aggregate for food service management companies, 
and instead link the standard contract threshold to 2 CFR part 200. 
This change would help ensure that the standard contract threshold in 
SFSP is adjusted regularly in accordance with the thresholds applied to 
the other Child Nutrition Programs. The proposed rule would apply this 
threshold to individual contracts, rather than aggregate contracts.
    The proposed rule also offered changes to 7 CFR 225.6(h)(7) to make 
SFSP requirements consistent with NSLP requirements that pertain to 
food service management companies. The changes would allow sponsors to 
enter into annual contracts that may be renewed annually for up to four 
additional years. The rule also proposed that all contracts in excess 
of $10,000 contain clauses for termination for both cause and 
convenience with 60-day notification.
    Comments: FNS received eight unique comments regarding FSMCs and 
Procurement Standards, with four commenters supporting the provision, 
two commenters opposing the term for contract termination and two 
commenters offering recommendations for improving the rule consistent 
with preferred practice. Due to the short length of the Program, some 
commenters felt that a 60-day notification of termination was too long. 
Commenters recommended that a 30-day notification period would be 
better suited for the Program.
    FNS Response: FNS recognizes that the Program has certain time 
constraints and that making the procurement standards consistent with 
NSLP might be impractical for sponsors. Accordingly, FNS amends 7 CFR 
225.6(h)(2) to align the small purchase threshold to 2 CFR part 200. 
This final rule also adds a new paragraph at 7 CFR 225.6(h)(7) to set a 
maximum 60-day notification of termination for cause or convenience. 
The final rule retains language to allow sponsors to enter into annual 
contracts with FSMCs that may be renewed annually for up to four 
additional years.
7 CFR 225.17
    Proposed Rule: The proposed rule would include the requirement for 
allowing all contracts to be terminated for cause or for convenience.
    Comments: Two commenters expressed support for this change. One 
commenter specifically noted that they supported the change because it 
did not include the 60-day notification of termination clause contained 
in the proposed changes to 7 CFR 225.6(h)(7).
    FNS Response: FNS agrees with commenters that this section should 
not include a 60-day notification of termination clause. Accordingly, 
the language in the final rule is codified as proposed under a new 
paragraph at 7 CFR 225.17(f).

h. Administrative Oversight at Approved Meal Service Sites

7 CFR 225.14(d)(3)
    Proposed Rule: The proposed rule sought to clarify sponsors' 
responsibilities with respect to meal services at the approved meal 
service sites and emphasizes that sponsors must have ``administrative 
oversight,'' rather than ``direct operational control,'' of meal 
services. Current regulations require sponsors to have ``direct 
operational control'' of meal service sites, meaning they are 
responsible for managing site staff, including hiring and determining 
conditions of employment and termination.
    Based on FNS's experience in administering SFSP and in consultation 
with local, State, and Federal administrators, USDA determined that 
sponsors find it difficult to comply with the understanding of ``direct 
operational control.'' Many sponsors deliver meals to recreational 
sites that are not directly affiliated with or managed by the sponsors, 
thus they do not have the authority to hire or terminate staff. 
Instead, these sponsors have control over only the meal service 
provided at the site and related activities such as training of staff 
on meal counting and record keeping procedures.
    Comments: FNS received 13 comments touching on this matter, five of 
which were unique. All commenters expressed support for the change to 
the provision.
    FNS Response: FNS will retain the proposed language for the final 
rule.

[[Page 25356]]

Accordingly, the final rule defines sponsor oversight as 
``administrative oversight'' and will not include direct operational 
control, at 7 CFR 225.14(d)(3).

i. Options To Submit a Combined Claim

7 CFR 225.9(d)(3)
    Proposed Rule: The proposed rule sought to make optional the 
requirement for sponsors operating for less than 10 days in the final 
month of operations to submit a combined claim for the final and 
immediate preceding month. Additionally, sponsors wishing to submit 
combined claims would be allowed to consolidate claims for 
reimbursement and submit a single claim for reimbursement in the 
following ways:
     Claims for 10 operating days or less in the initial month 
of operations may be combined with the claim for the subsequent month;
     Claims for 10 operating days or less in the final month of 
operations may be combined with the claim for the preceding month; and
     Claims for 3 consecutive months may be combined, as long 
as this combined claim only includes 10 operating days or less from 
each of the first and last months of Program operations.
    Comments: FNS received four unique comments regarding the option 
for sponsors to submit a combined reimbursement claim. Two commenters 
supported the provision while two commenters opposed the provision. 
Commenters recommended that States be given the discretion to decide 
how claims were made in order to retain consistent methods.
    FNS Response: The intent of this provision is to streamline the 
claims process for States and sponsors. The proposed language permits 
sponsors to submit a combined claim. Therefore, the language that was 
presented in the proposed rule is retained in the final rule with the 
addition of language specifying State agency discretion. Accordingly, 
the final rule amends 7 CFR 225.9(d)(3) to provide States with the 
flexibility to allow sponsors to submit combined claims for 
reimbursement.

j. Delivery Notice Requirements

7 CFR 210.18, 7 CFR 225.13
    Proposed Rule: FNS proposed changes that would specify in NSLP and 
SFSP regulations what constitutes proper delivery and receipt of a 
notice of action in an effort to be consistent with the regulations in 
the Child and Adult Care Food Program (CACFP). A notice of action is 
considered delivered by certified mail, return receipt, by facsimile, 
or by email. Neither NSLP nor SFSP have requirements that explain 
notice and delivery by a State agency or FNS to an institution. FNS 
proposed this change because some State agencies have been experiencing 
difficulty in notifying institutions of review findings, required 
corrective actions, and terminations. By choosing to avoid accepting 
the State agency's certified mail, non-complying institutions have 
continued to operate, claim reimbursement, and mismanage the Programs.
    Comments: FNS received three unique comments, all of which 
supported the provision to make the requirements consistent with CACFP.
    FNS Response: Accordingly, the final rule amends 7 CFR 210.18(i) 
and 225.13(b)(1) to include delivery notice requirements in NSLP and 
SFSP, respectively.

III. Procedural Matters

Executive Order 12866, 13563 and 13771

    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 final rule has been determined to be not significant 
by the Office of Management and Budget (OMB) in conformance with 
Executive Order 12866. Therefore, this rule has not been reviewed by 
OMB. No Regulatory Impact Analysis is required. Executive Order 13771 
directs agencies to reduce regulation and control regulatory costs and 
provides that for every one new regulation issued, at least two prior 
regulations be identified for elimination, and that the cost of planned 
regulations be prudently managed and controlled through a budgeting 
process. FNS considers this rule to be an Executive Order 13771 
deregulatory action.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612) requires agencies 
to analyze the impact of rulemaking on small entities and consider 
alternatives that would minimize any significant impacts on a 
substantial number of small entities. Pursuant to that review, it has 
been certified that this final rule would not have a significant impact 
on a substantial number of small entities. This rule will streamline 
cost accounting procedures so that more time and resources may be 
directed toward increasing access, providing quality meal service to 
benefit eligible children, and ensuring Program integrity. While this 
rule will impact school food authorities, non-profit organizations, and 
local governments that choose to participate, its implementation will 
not have significant economic impact on any of those entities.

Unfunded Mandates Reform Act

    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, USDA generally must prepare a 
written statement, including a cost benefit analysis, for proposed and 
final rules with ``Federal mandates'' that may result in expenditures 
by State, local or tribal governments, in the aggregate, or 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 USDA 
to identify and consider a reasonable number of regulatory alternatives 
and adopt the most cost effective or least burdensome alternative that 
achieves the objectives of the rule. This final rule does not contain 
Federal mandates (under the regulatory provisions of Title II of the 
UMRA) for State, local and tribal governments or the private sector of 
$100 million or more in any one year. Thus, this rule is not subject to 
the requirements of sections 202 and 205 of the UMRA.

Executive Order 12372

    The Summer Food Service Program is listed in the Catalog of Federal 
Domestic Assistance Programs under 10.559. The National School Lunch 
Program is listed in the Catalog of Federal Domestic Assistance 
Programs under 10.555. Both of these Child Nutrition Programs are 
subject to Executive Order 12372, which requires intergovernmental 
consultation with State and local officials. Since Child Nutrition 
Programs are State-administered, FNS has formal and informal 
discussions with State and local officials, including representatives 
of Indian Tribal Organizations, on an ongoing basis regarding program 
requirements and operation. This

[[Page 25357]]

provides FNS with the opportunity to receive regular input from program 
administrators which contributes to the development of feasible program 
requirements.

Executive Order 13132, Federalism

    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 13121. USDA 
has considered the impact of this final rule on State and local 
governments and has determined that this rule does not have federalism 
implications. Therefore, under section 6(b) of the Executive Order, a 
federalism summary is not required.

Executive Order 12988, Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations, or policies which 
conflict with its provisions or which would otherwise impede its full 
and timely implementation. This rule is not intended to 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. Appeal procedures are set 
forth at 7 CFR 225.13.

Civil Rights Impact Analysis

    FNS has reviewed this final rule in accordance with USDA Regulation 
4300-4, ``Civil Rights Impact Analysis,'' to identify any major civil 
rights impacts the rule might have on program participants on the basis 
of age, race, color, national origin, sex, or disability. After a 
careful review of the rule's intent and provisions, FNS has determined 
that this rule is not expected to limit or reduce the ability of 
protected individuals to participate in the Summer Food Service Program 
or the National School Lunch Program.

Executive Order 13175

    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 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. FNS has assessed the impact 
of this rule on Indian tribes and determined that this final rule does 
not, to our knowledge, have tribal implications that require tribal 
consultation under Executive Order 13175. If a Tribe requests 
consultation, FNS will work with the Office of Tribal Relations to 
ensure meaningful consultation is provided where changes, additions and 
modifications identified herein are not expressly mandated by Congress. 
FNS is unaware of any current Tribal laws that could be in conflict 
with this rule.

Paperwork Reduction Act

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

E-Government Act Compliance

    USDA 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 210

    Grant programs--education, Grant programs--health, Infants and 
children, Nutrition, Penalties, Reporting and recordkeeping 
requirements, School breakfast and lunch programs, Surplus agricultural 
commodities.

7 CFR Part 225

    Food assistance programs, Grant programs--health, Infants and 
children, Labeling, Reporting and recordkeeping requirements.

    Accordingly, 7 CFR parts 210 and 225 are amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

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

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


0
2. In Sec.  210.18, remove the last two sentences of paragraph (i)(3) 
and add, in their place, four sentences to read as follows:


Sec.  210.18  Administrative reviews.

* * * * *
    (i) * * *
    (3) * * * This notice shall also include a statement indicating 
that the school food authority may appeal the denial of all or a part 
of a Claim for Reimbursement or withholding payment and the entity 
(i.e., FNS or State agency) to which the appeal should be directed. The 
notice is considered to be received by the school food authority when 
it is delivered by certified mail, return receipt (or the equivalent 
private delivery service), by facsimile, or by email. If the notice is 
undeliverable, it is considered to be received by the school food 
authority five days after being sent to the addressee's last known 
mailing address, facsimile number, or email address. The State agency 
shall notify the school food authority, in writing, of the appeal 
procedures as specified in paragraph (p) of this section for appeals of 
State agency findings, and for appeals of FNS findings, provide a copy 
of Sec.  210.29(d)(3).
* * * * *

PART 225--SUMMER FOOD SERVICE PROGRAM

0
3. The authority citation for 7 CFR part 225 continues to read as 
follows:

    Authority:  Secs. 9, 13 and 14, Richard B. Russell National 
School Lunch Act, as amended (42 U.S.C. 1758, 1761 and 1762a).


0
4. In Sec.  225.2, add definitions of ``Excess funds'' and ``Unused 
reimbursement'' in alphabetical order to read as follows:


Sec.  225.2   Definitions.

* * * * *
    Excess funds means the difference between any advance funding and 
reimbursement funding, when advance funds received by a sponsor are 
greater than the reimbursement amount earned by a sponsor.
* * * * *
    Unused reimbursement means the difference between the amount of 
reimbursement earned and received and allowable costs, when 
reimbursement exceeds costs.
* * * * *

0
5. In Sec.  225.6:
0
a. Amend paragraph (b)(7) by adding a sentence at the end of the 
paragraph;
0
b. Amend paragraph (h)(1) by removing the term ``225.15(h)'' and adding 
in its place the term ``225.15(m)'' and removing the words ``of this 
part'';

[[Page 25358]]

0
c. Amend paragraph (h)(2) introductory text by revising the second 
sentence;
0
d. Redesignate paragraph (h)(7) as paragraph (h)(8);
0
e. Add new paragraph (h)(7); and
0
f. Amend newly designated paragraph (h)(8) by removing the term ``Sec.  
225.15(h)(1)'' and adding in its place the term ``Sec.  225.15(m)''.
    The revision and additions read as follows:


Sec.  225.6  State agency responsibilities.

* * * * *
    (b) * * *
    (7) * * * State agencies may exempt school food authorities 
applying to operate the SFSP from submitting a separate budget to the 
State agency, provided that operation of the SFSP is included in the 
annual budget submitted for the National School Lunch Program.
* * * * *
    (h) * * *
    (2) * * * Sponsors that are public entities, sponsors with 
exclusive year-round contracts with a food service management company, 
and sponsors that have no food service management company contracts 
exceeding the simplified acquisition threshold in 2 CFR part 200, as 
applicable, may use their existing or usual form of contract, provided 
that such form of contract has been submitted to and approved by the 
State agency. * * *
* * * * *
    (7) The contract between a sponsor and food service management 
company shall be no longer than 1 year; and options for the yearly 
renewal of a contract may not exceed 4 additional years. All contracts 
shall include a termination clause whereby either party may cancel for 
cause or for convenience with up to 60-day notification.
* * * * *

0
6. In Sec.  225.7:
0
a. Add paragraph (d)(2)(iii);
0
b. Add four sentences to the end of paragraph (f); and
0
c. Add paragraphs (f)(1) through (4).
    The additions read as follows:


Sec.  225.7  Program monitoring and assistance.

* * * * *
    (d) * * *
    (2) * * *
    (iii) Review of sponsor's operation. State agencies should 
determine if:
    (A) Expenditures are allowable and consistent with FNS Instructions 
and guidance and all funds accruing to the food service are properly 
identified and recorded as food service revenue;
    (B) Expenditures are consistent with budgeted costs, and the 
previous year's expenditures taking into consideration any changes in 
circumstances;
    (C) Reimbursements have not resulted in accumulation of net cash 
resources as defined in paragraph (f) of this section; and
    (D) The level of administrative spending is reasonable and does not 
affect the sponsor's ability to operate a nonprofit food service and 
provide a quality meal service.
* * * * *
    (f) * * * Additionally, each State agency shall establish a system 
for monitoring and reviewing sponsors' nonprofit food service to ensure 
that all Program reimbursement funds are used solely for the conduct of 
the food service operation. State agencies must review the net cash 
resources of the nonprofit food service of each sponsor participating 
in the Program and ensure that the net cash resources do not exceed one 
months' average expenditures for sponsors operating only during the 
summer months and three months' average expenditure for sponsors 
operating Child Nutrition Programs throughout the year. State agency 
approval shall be required for net cash resources in excess of 
requirements set forth in this paragraph (f). Based on this monitoring, 
the State agency may provide technical assistance to the sponsor to 
improve meal service quality or take other action designed to improve 
the nonprofit meal service quality under the following conditions, 
including but not limited to:
    (1) The sponsor's net cash resources exceed the limits included in 
this paragraph (f) for the sponsor's nonprofit food service or such 
other amount as may be approved in accordance with this paragraph;
    (2) The ratio of administrative to operating costs (as defined in 
Sec.  225.2) is high;
    (3) There is significant use of alternative funding for food and/or 
other costs; or
    (4) A significant portion of the food served is privately donated 
or purchased at a very low price.
* * * * *

0
7. In Sec.  225.9:
0
a. Revise the last sentence of paragraph (a) and paragraphs (c) and 
(d); and
0
b. Add paragraph (g).
    The revisions and additions read as follows:


Sec.  225.9   Program assistance to sponsors.

    (a) * * * The amount of the start-up payment shall be deducted from 
the first advance payment or, if the sponsor does not receive advance 
payments, from the first reimbursement.
* * * * *
    (c) Advance payments. At the sponsor's request, State agencies 
shall make advance payments to sponsors that have executed Program 
agreements in order to assist these sponsors in meeting expenses. For 
sponsors operating under a continuous school calendar, all advance 
payments shall be forwarded on the first day of each month of 
operation. Advance payments shall be made by the dates specified in 
paragraph (c)(1)(i) of this section for all other sponsors whose 
requests are received at least 30 days prior to those dates. Requests 
received less than 30 days prior to those dates shall be acted upon 
within 30 days of receipt. When making advance payments, State agencies 
shall observe the following criteria:
    (1) Payments. (i) State agencies shall make advance payments by 
June 1, July 15, and August 15. To be eligible for the second and third 
advance payments, the sponsor must certify that it is operating the 
number of sites for which the budget was approved and that its 
projected costs do not differ significantly from the approved budget. 
Except for school food authorities, sponsors must conduct training 
sessions before receiving the second advance payment. Training sessions 
must cover Program duties and responsibilities for the sponsor's staff 
and for site personnel. A sponsor shall not receive advance payments 
for any month in which it will participate in the Program for less than 
10 days. However, if a sponsor operates for less than 10 days in June 
but for at least 10 days in August, the second advance payment shall be 
made by August 15.
    (ii) To determine the amount of the advance payment to any sponsor, 
the State agency shall employ whichever of the following methods will 
result in the larger payment:
    (A) The total reimbursement paid to the sponsor for the same 
calendar month in the preceding year; or
    (B) For vended sponsors, 50 percent of the amount determined by the 
State agency to be needed that month for meals, or, for self-
preparation sponsors, 65 percent of the amount determined by the State 
agency to be needed that month for meals.
    (2) Advance payment estimates. When determining the amount of 
advance payments payable to the sponsor, the State agency shall make 
the best possible estimate based on the sponsor's request and any other 
available data. Under no circumstances

[[Page 25359]]

may the amount of the advance payment exceed the greater of the amount 
estimated by the State agency to be needed by the sponsor to meet 
Program costs or $40,000.
    (3) Deductions from advance payments. The State agency shall deduct 
from advance payments the amount of any previous payment which is under 
dispute or which is part of a demand for recovery under Sec.  225.12.
    (4) Withholding of advance payments. If the State agency has reason 
to believe that a sponsor will not be able to submit a valid claim for 
reimbursement covering the month for which advance payments have 
already been made, the subsequent month's advance payment shall be 
withheld until a valid claim is received.
    (5) Repayment of excess advance payments. Upon demand of the State 
agency, sponsors shall repay any advance Program payments in excess of 
the amount cited on a valid claim for reimbursement.
    (d) Reimbursements. Sponsors shall not be eligible for meal 
reimbursements unless they have executed an agreement with the State 
agency. All reimbursements shall be in accordance with the terms of 
this agreement. Reimbursements shall not be paid for meals served at a 
site before the sponsor has received written notification that the site 
has been approved for participation in the Program. Income accruing to 
a sponsor's program shall be deducted from costs. The State agency may 
make full or partial reimbursement upon receipt of a claim for 
reimbursement, but shall first make any necessary adjustments in the 
amount to be paid. The following requirements shall be observed in 
submitting and paying claims:
    (1) School food authorities that operate the Program, and operate 
more than one child nutrition program under a single State agency, must 
use a common claim form (as provided by the State agency) for claiming 
reimbursement for meals served under those programs.
    (2) No reimbursement may be issued until the sponsor certifies that 
it operated all sites for which it is approved and that there has been 
no significant change in its projected expenses since its preceding 
claim and, for a sponsor receiving an advance payment for only one 
month, that there has been no significant change in its projected 
expenses since its initial advance payment.
    (3) Sponsors must submit a monthly claim or a combined claim within 
60 days of the last day of operation. Sponsors may not submit a 
combined claim for meal reimbursements that crosses fiscal years. In 
addition, State agencies must ensure that the correct reimbursement 
rates are applied for meals claimed for months when different 
reimbursement rates are in effect. With approval from the State agency, 
sponsors have the flexibility to combine the claim for reimbursement in 
the following ways:
    (i) For 10 operating days or less in their initial month of 
operations with the claim for the subsequent month;
    (ii) For 10 operating days or less in their final month of 
operations with the claim for the preceding month; or
    (iii) For 3 consecutive months, as long as this combined claim only 
includes 10 operating days or less from each of the first and last 
months of program operations.
    (4) The State agency shall forward reimbursements within 45 days of 
receiving valid claims. If a claim is incomplete or invalid, the State 
agency shall return the claim to the sponsor within 30 days with an 
explanation of the reason for disapproval. If the sponsor submits a 
revised claim, final action shall be completed within 45 days of 
receipt.
    (5) Claims for reimbursement shall report information in accordance 
with the financial management system established by the State agency, 
and in sufficient detail to justify the reimbursement claimed and to 
enable the State agency to provide the Reports of Summer Food Service 
Program Operations required under Sec.  225.8(b). In submitting a claim 
for reimbursement, each sponsor shall certify that the claim is correct 
and that records are available to support this claim. Failure to 
maintain such records may be grounds for denial of reimbursement for 
meals served claimed during the period covered by the records in 
question. The costs of meals served to adults performing necessary food 
service labor may be included in the claim. Under no circumstances may 
a sponsor claim the cost of any disallowed meals as operating costs.
    (6) A final Claim for Reimbursement shall be postmarked or 
submitted to the State agency not later than 60 days after the last day 
of the month covered by the claim. State agencies may establish shorter 
deadlines at their discretion. Claims not filed within the 60 day 
deadline shall not be paid with Program funds unless FNS determines 
that an exception should be granted. The State agency shall promptly 
take corrective action with respect to any Claim for Reimbursement as 
determined necessary through its claim review process or otherwise. In 
taking such corrective action, State agencies may make upward 
adjustments in Program funds claimed on claims filed within the 60 day 
deadline if such adjustments are completed within 90 days of the last 
day of the month covered by the claim and are reflected in the final 
Program Operations Report (FNS-418). Upward adjustments in Program 
funds claimed which are not reflected in the final FNS-418 for the 
month covered by the claim cannot be made unless authorized by FNS. 
Downward adjustments in Program funds claimed shall always be made 
without FNS authorization, regardless of when it is determined that 
such adjustments are necessary.
    (7) Payments to a sponsor must equal the amount derived by 
multiplying the number of eligible meals, by type, actually served 
under the sponsor's program to eligible children by the current 
applicable reimbursement rate for each meal type. Sponsors must be 
eligible to receive additional reimbursement for each meal served to 
participating children at rural or self-preparation sites.
    (8) On each January 1, or as soon thereafter or as practicable, FNS 
will publish a notice in the Federal Register announcing any adjustment 
to the reimbursement rates described in paragraph (d)(7) of this 
section. Adjustments will be based upon changes in the series for food 
away from home of the Consumer Price Index (CPI) for all urban 
consumers since the establishment of the rates. Higher rates will be 
established for Alaska and Hawaii, based on the CPI for those States.
    (9) Sponsors of camps shall be reimbursed only for meals served to 
children in camps whose eligibility for Program meals is documented. 
Sponsors of NYSP sites shall only claim reimbursement for meals served 
to children enrolled in the NYSP.
    (10) If a State agency has reason to believe that a sponsor or food 
service management company has engaged in unlawful acts in connection 
with Program operations, evidence found in audits, reviews, or 
investigations shall be a basis for nonpayment of the applicable 
sponsor's claims for reimbursement.
* * * * *
    (g) Unused reimbursement. If a sponsor receives more reimbursement 
than expended on allowable costs, the sponsor should use this unused 
reimbursement to improve the meal service or management of the Program. 
Unused reimbursement remaining at the end of the Program year must be 
used to pay allowable costs of other Child

[[Page 25360]]

Nutrition Programs or for SFSP operations the following Program year.
    (1) If a sponsor does not return to participate in the Program the 
following year and does not operate any other Child Nutrition Programs, 
the sponsor is not required to return the unused reimbursement to the 
State agency.
    (2) [Reserved]

0
8. In Sec.  225.11, add paragraph (g) to read as follows:


Sec.  225.11   Corrective action procedures.

* * * * *
    (g) Technical assistance for improved meal service. If the State 
agency finds that a sponsor is operating a program with poor quality 
meal service and is operating below the reimbursement level, the State 
agency should provide technical assistance to the sponsor to improve 
the meal service.

0
9. In Sec.  225.12, revise the second sentence of paragraph (a) to read 
as follows:


Sec.  225.12   Claims against sponsors.

    (a) * * * State agencies shall consider claims for reimbursement 
not properly payable if a sponsor's records do not support all meals 
claimed and include all costs associated with the Program sufficient to 
justify that reimbursements were spent only on allowable Child 
Nutrition Program costs. * * *
* * * * *

0
10. In Sec.  225.13, revise paragraph (b)(1) to read as follows:


Sec.  225.13   Appeal procedures.

* * * * *
    (b) * * *
    (1) The sponsor or food service management company be advised in 
writing of the grounds upon which the State agency based the action. 
The notice of action shall also state that the sponsor or food service 
management company has the right to appeal the State's action. The 
notice is considered to be received by the sponsor or food service 
management company when it is delivered by certified mail, return 
receipt (or the equivalent private delivery service), by facsimile, or 
by email. If the notice is undeliverable, it is considered to be 
received by the sponsor or food service management company five days 
after being sent to the addressee's last known mailing address, 
facsimile number, or email address;
* * * * *

0
11. In Sec.  225.14, revise paragraphs (d)(3) introductory text and 
(d)(3)(i) to read as follows:


Sec.  225.14   Requirements for sponsor participation.

* * * * *
    (d) * * *
    (3) Sponsors which are units of local, municipal, county, or State 
government, and sponsors which are private nonprofit organizations, 
will only be approved to administer the Program at sites where they 
have administrative oversight. Administrative oversight means that the 
sponsor shall be responsible for:
    (i) Maintaining contact with meal service staff, ensuring that 
there is adequately trained meal service staff on site, monitoring the 
meal service throughout the period of Program participation, and 
terminating meal service at a site if staff fail to comply with Program 
regulations; and
* * * * *

0
12. In Sec.  225.15:
0
a. Add paragraph (a)(4);
0
b. In paragraph (b)(3), remove the term ``Sec.  225.9(d)(4)'' and add 
in its place the term ``Sec.  225.9(d)(5)''; and
0
c. Revise the first sentence of paragraph (c)(1), the second sentence 
of paragraph (m)(4) introductory text, and paragraphs (m)(4)(xii) and 
(m)(5) and (6).
    The addition and revisions read as follows:


Sec.  225.15   Management responsibilities of sponsors.

    (a) * * *
    (4) Sponsors must maintain documentation of a nonprofit food 
service including copies of all revenues received and expenses paid 
from the nonprofit food service account. Program reimbursements and 
expenditures may be included in a single nonprofit food service account 
with funds from any other Child Nutrition Programs authorized under the 
Richard B. Russell National School Lunch Act or the Child Nutrition Act 
of 1966, except the Special Supplemental Nutrition Program for Women, 
Infants, and Children. All Program reimbursement funds must be used 
solely for the conduct of the nonprofit food service operation. The net 
cash resources of the nonprofit food service of each sponsor 
participating in the Program may not exceed one month's average 
expenditures for sponsors operating only during the summer months and 
three months' average expenditures for sponsors operating Child 
Nutrition Programs throughout the year. State agency approval shall be 
required for net cash resources in excess of the requirements set forth 
in this paragraph (a)(4). Sponsors shall monitor Program costs and, in 
the event that net cash resources exceed the requirements outlined, 
take action to improve the meal service or other aspects of the 
Program.
* * * * *
    (c) * * *
    (1) Sponsors shall maintain accurate records justifying all meals 
claimed and documenting that all Program funds were spent only on 
allowable Child Nutrition Program costs. * * *
* * * * *
    (m) * * *
    (4) * * * Sponsors that are schools or school food authorities and 
have an exclusive contract with a food service management company for 
year-round service, and sponsors whose total contracts with food 
service management companies will not exceed the simplified acquisition 
threshold in 2 CFR part 200, as applicable, shall not be required to 
comply with these procedures. * * *
* * * * *
    (xii) All bids in an amount which exceeds the lowest bid and all 
bids totaling the amount specified in the small purchase threshold in 2 
CFR part 200, as applicable, or more are submitted to the State agency 
for approval before acceptance. State agencies shall respond to a 
request for approval of such bids within 5 working days of receipt.
    (5) Each food service management company which submits a bid 
exceeding the simplified acquisition threshold in 2 CFR part 200, as 
applicable, shall obtain a bid bond in an amount not less than 5 
percent nor more than 10 percent, as determined by the sponsor, of the 
value of the contract for which the bid is made. A copy of the bid bond 
shall accompany each bid.
    (6) Each food service management company which enters into a food 
service contract exceeding the small purchase threshold in 2 CFR part 
200, as applicable, with a sponsor shall obtain a performance bond in 
an amount not less than 10 percent no more than 25 percent of the value 
of the contract for which the bid is made, as determined by the State 
agency. Any food service management company which enters into more than 
one contract with any one sponsor shall obtain a performance bond 
covering all contracts if the aggregate amount of the contracts exceeds 
the simplified acquisition threshold in 2 CFR part 200, as applicable. 
Sponsors shall require the food service management company to furnish a 
copy of the performance bond within ten days of the awarding of the 
contract.
* * * * *

[[Page 25361]]


0
13. In Sec.  225.17, add paragraph (f) to read as follows:


Sec.  225.17   Procurement standards.

* * * * *
    (f) All contracts in excess of $10,000 must contain a clause 
allowing termination for cause or for convenience by the sponsor 
including the manner by which it will be effected and the basis for 
settlement.

    Dated: May 16, 2018.
Brandon Lipps,
Administrator, Food and Nutrition Service.
[FR Doc. 2018-11806 Filed 5-31-18; 8:45 am]
 BILLING CODE 3410-30-P