[Federal Register: September 1, 2004 (Volume 69, Number 169)]
[Rules and Regulations]
[Page 53501-53547]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se04-16]
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Part II
Department of Agriculture
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Food and Nutrition Service
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7 CFR Part 226
Child and Adult Care Food Program; Improving Management and Program
Integrity; Interim Rule
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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 226
RIN 0584-AC24
Child and Adult Care Food Program; Improving Management and
Program Integrity
AGENCY: Food and Nutrition Service, USDA.
ACTION: Interim rule.
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SUMMARY: This interim rule incorporates in the Child and Adult Care
Food Program regulations the changes proposed by the Department in a
rulemaking published on September 12, 2000. These changes result from
the findings of State and Federal Program reviews; from audits and
investigations conducted by the Office of Inspector General; and from
amendments to the Richard B. Russell National School Act enacted in the
Healthy Meals for Healthy Americans Act of 1994, the Personal
Responsibility and Work Opportunities Reconciliation Act of 1996, and
the William F. Goodling Child Nutrition Reauthorization Act of 1998.
This rule revises State agency criteria for approving and renewing
institution applications; certain State- and sponsor-level monitoring
requirements; and Program training and other operating requirements.
Additional statutory changes resulting from enactment of the
Agricultural Risk Protection Act of 2000 and the Grain Standards and
Warehouse Improvement Act of 2000 were addressed in a separate interim
rule published on June 27, 2002. The changes in this interim rule are
primarily designed to improve Program operations and monitoring at the
State and institution levels and, where possible, to streamline and
simplify Program requirements for State agencies and institutions.
DATES: This interim rule is effective October 1, 2004. The following
provisions must be implemented no later than April 1, 2005: Sec. Sec.
226.6(f)(1)(x), 226.6(m)(5), 226.15(e)(2) and (e)(3), and 226.18(e).
The following provisions must be implemented no later than October 1,
2005: Sec. Sec. 226.7(k), 226.10(c), 226.11(b), and 226.13(b). To be
assured of consideration, comments must be postmarked on or before
September 1, 2005. Comments will also be accepted via E-Mail submission
if sent to CNDPROPOSAL@FNS.USDA.GOV no later than 11:59 p.m. on
September 1, 2005.
ADDRESSES: The Food and Nutrition Service invites interested persons to
submit comments on this interim rule. Comments may be submitted by any
of the following methods:
E-Mail: Send comments to CNDPROPOSAL@FNS.USDA.GOV
Fax: Submit comments by facsimile transmission to: (703)
305-2879, attention Robert Eadie.
Mail: Comments should be addressed to Mr. Robert Eadie,
Chief, Policy and Program Development Branch, Child Nutrition Division,
Food and Nutrition Service, Department of Agriculture, 3101 Park Center
Drive, Room 634, Alexandria, Virginia 22302-1594. All written
submissions will be available for public inspection at this location
Monday through Friday, 8:30 a.m.-5 p.m.
Hand Delivery or Courier: Deliver comments to 3101 Park
Center Drive, Room 634, Alexandria, Virginia 22302-1594, during normal
business hours of 8:30 a.m.-5 p.m.
Federal eRulemaking Portal: Go to http://www.regulations.gov.
Follow the online instructions for submitting
comments.
FOR FURTHER INFORMATION CONTACT: Mr. Edward Morawetz or Mr. Keith
Churchill at the above address or by telephone at (703) 305-2590. A
regulatory impact analysis was completed as part of the development of
this interim rule. Copies of this analysis may be requested from Mr.
Morawetz or Mr. Churchill.
SUPPLEMENTARY INFORMATION:
Background
Why Is This Rule Being Issued as an Interim Rule, Rather Than as a
Final Rule?
As noted, USDA published a proposed rulemaking on September 12,
2000 (65 FR 55101). That proposed rule responded to State and Federal
Program reviews which found numerous cases of mismanagement and Program
abuse by child care sponsors and facilities. In addition, audits and
investigations conducted by the Office of Inspector General (OIG) had
raised serious concerns regarding the adequacy of financial and
administrative controls on the Child and Adult Care Food Program
(CACFP). As originally drafted, the proposed rulemaking presented a
large number of changes designed to improve Program management and
integrity in the CACFP.
In the spring of 2000, shortly before the proposed rule was
published, the Agricultural Risk Protection Act of 2000 (ARPA) was
enacted. ARPA included a number of nondiscretionary provisions
affecting CACFP and requiring implementation. As a result, we published
the September 2000 proposed rule featuring discretionary changes to
CACFP, and then subsequently published an interim rule on June 27,
2002, implementing the nondiscretionary provisions mandated by ARPA (67
FR 43447). Due to the timing of ARPA's enactment and the subsequent
publication of the proposed rule, those who commented on the proposed
rule were largely unaware of the way in which the provisions of ARPA
would interact with the discretionary regulatory proposals for CACFP
published in September 2000.
We are publishing this interim rulemaking in order to provide a
fuller opportunity for the public to comment on the interactions
between the provisions of the proposed rule (which are included in this
interim rule) and the interim rule subsequently published on June 27,
2002. After receiving public comment, we intend to publish a single
CACFP final rule.
Why Did OIG Conduct These Audits and Investigations?
The Food and Nutrition Service (FNS) asked OIG to conduct an audit
of the family day care home component of CACFP because of the results
of State and Federal Program reviews. In its first audit, OIG selected
five States for inclusion based on the States' total family day care
home sponsor and provider enrollment, Program costs, and geographic
location. Then, it randomly selected family day care home sponsors and
providers within those five States to be included in the audits.
What Did the First OIG Audit Reveal?
In 1995, OIG released a report (No. 27600-6-At) that presented the
results of these five audits. The audits evaluated:
The adequacy of FNS, State agency, and family day care
home sponsors' financial and administrative controls over meal claims;
The accuracy of Program and participation data and claims
for reimbursement submitted by family day care home sponsors; and
Whether State agencies and participating sponsors complied
with applicable laws, regulations, and guidance.
These audits found serious types of regulatory noncompliance by
both sponsors and homes, including:
Meals claimed for absent children;
Meals claimed for nonexistent homes and children;
Lack of documentation for meal counts and/or menu records;
[[Page 53503]]
Failure by sponsors to perform required monitoring visits;
and
Sponsors' failure to require providers to attend training.
What Were OIG's Recommendations to FNS in the 1995 Audit?
Based on its findings, OIG's 1995 audit recommended changes to
CACFP review requirements and management controls. In total, the 1995
audit made fifteen recommendations. We have completed action on the
five OIG recommendations from the national audit that did not require
regulatory change. The other ten recommendations require regulatory
changes, most of which are addressed in this preamble.
The most significant recommendations from the 1995 audit were that
the CACFP regulations be amended to require that:
Sponsors and State agencies make unannounced reviews of
day care homes;
Parental contacts be made in order to verify children's
Program participation;
Sponsor reviews of day care homes include, at a minimum,
reconciliation of enrollment, attendance, and meal claim data;
All family day care home providers receive training each
year; and
All State agency reviews include certain specified review
elements.
Recommendations from the 1995 audit that were included as statutory
provisions in ARPA (for example, the requirement that sponsoring
organizations make unannounced reviews of their facilities) were
addressed in the previously-mentioned interim rule published on June
27, 2002.
Has OIG Conducted Other Audits As Well?
OIG conducted additional audits of family day care home and child
care center sponsors, many of which State or Federal Program
administrators had suspected of having serious management problems.
These targeted audits, released in August of 1999 and were referred to
collectively as ``Operation Kiddie Care'' by OIG, confirmed the
findings of the 1995 audits and developed additional findings as well.
Is the Department Including in This Rule Any of the Recommendations
From OIG's 1999 ``Operation Kiddie Care'' Audit?
Most of the ``Operation Kiddie Care'' audit's recommendations for
regulatory changes also appear in this rule. As mentioned above, those
changes that are not addressed here were included in the June 27, 2002,
interim rule, due to the fact that they were mandated by ARPA.
Is There Any Recommendation From the Operation Kiddie Care Audit Not
Included in Either Interim Rule?
Yes. We have not incorporated, either in this or the earlier
interim rule, the audit's recommendation for a major Program design
change in the way that sponsoring organizations of family day care home
sponsors are reimbursed for their administrative expenses.
The current administrative reimbursement system for family day care
home sponsors sets a cap on administrative expenses that is based on
the total number of homes sponsored. Home sponsors are paid the lesser
of: The number of homes administered times a per home administrative
rate; actual administrative costs; or the sponsor's approved budget.
Thus, because operating the Program in a larger number of homes raises
the ceiling on the sponsor's maximum administrative earnings, some
observers believe that there is a built-in financial incentive for day
care home sponsors to administer the Program in more homes, and a
built-in financial disincentive for sponsors to terminate homes' CACFP
participation, even if the homes are doing a poor job of administering
the Program.
The management improvement training provided to State Program
administrators in 1999-2000, and the interim rule published in 2002,
addressed this problem by providing State agencies with the tools to
perform better and more thorough reviews of institutions' budgets and
sponsors' management plans. Specifically, the performance standards
mandated by ARPA should result in more thorough State agency reviews of
institution applications which, consequently, should also help limit
sponsors' administrative costs to those expenses that are reasonable
and necessary for Program administration, regardless of the ceiling
resulting from the homes times rates calculation.
However, at the time that the proposed rule was issued, these
performance standards had not been fully implemented. For that reason,
we asked readers of the proposed rule to comment on several possible
alternatives to the current system of administrative reimbursement for
day care home sponsors. These alternatives had been discussed with
stakeholders during development of the proposed rule, and included:
Eliminating homes times rates as a component of the
administrative cost system, instead paying sponsors the lesser of
actual costs or approved budget amounts;
Establishing a fixed percentage of the meal reimbursement
distributed to providers as the sponsor's administrative payment. In
other words, if a sponsor disbursed $300,000 per month in meal
reimbursements to its providers, it would receive, in addition to the
$300,000 in meal reimbursements for its providers, up to some fraction
(perhaps 10 to 15 percent) of that amount to cover all of their
approved and allowable administrative expenses;
Paying sponsors a fixed administrative fee for each
reimbursable meal served by their providers;
Lowering the per home administrative rates for sponsors of
more than 200 homes, in order to reduce their financial incentive to
sponsor more homes; and
Establishing some other system of administrative
reimbursement for home sponsors that commenters might recommend.
How Did Commenters Respond to These Possible Alternative Systems of
Administrative Reimbursement for Day Care Home Sponsors?
A total of 484 commenters responded to our request for comments on
these alternatives to the current administrative reimbursement system.
After analyzing these comments, we have determined that no change to
the current administrative reimbursement structure is warranted.
How Many Comments Did the Department Receive?
We Received a Total of 548 Comments on the Proposed Rule.
Who Commented on the Rule?
Of the 548 comments received, 353 were from individuals associated
with institutions participating in CACFP (either independent centers or
sponsoring organizations of homes or centers); 67 were from family day
care home providers participating in the Program; 54 (representing 36
different States) were from State Program directors and their staffs;
21 were from State or National CACFP or children's advocacy
organizations; and 53 were from parents, students, nutritionists, or
other interested individuals whose institutional affiliation could not
be determined.
How Is the Remainder of This Preamble Organized?
The preamble is divided into four parts, and follows the same
organization used in both the proposed rule and the interim rule
published on June 27, 2002:
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I. State agency review of institutions' Program applications;
II. State agency and institution monitoring requirements;
III. Training and other operational requirements; and
IV. Other provisions mandated by the Healthy Meals for Healthy
Americans Act of 1994 (Pub. L. 103-448, hereinafter referred to as
the Healthy Meals Act); the Personal Responsibility and Work
Opportunities Reconciliation Act of 1996 (Pub. L. 104-193,
hereinafter referred to as PRWORA); and the William F. Goodling
Child Nutrition Reauthorization Act of 1998 (Pub. L. 105-336,
hereinafter referred to as the Goodling Act). Readers of this
preamble should note that none of the changes mandated by Public Law
108-265, the Child Nutrition and WIC Reauthorization Act of 2004, is
included in this rule. These changes will all be incorporated in one
or more future rules.
While many of the changes discussed in parts I-III of this preamble
are discretionary changes designed to improve Program management and
streamline Program operations, we also included a number of changes to
the CACFP regulations required by the Healthy Meals Act, PRWORA, and
the Goodling Act. Most of the mandatory changes are located in part IV
of this preamble, though some appear in other parts of the preamble,
depending on whether the specific statutory change under consideration
was thematically related to the discretionary changes being discussed
in another part of the preamble. Non-discretionary provisions (i.e.,
changes based on a statutory mandate) will be identified in the
preamble discussion.
Part I. State Agency Review of Institutions' Program Applications
A. State Agency Review of a New Institution's Application
What does the NSLA Say With Regard to the Duration of an Application?
Section 204(a)(3) of the Child Nutrition and WIC Reauthorization
Act of 1989 (Pub. L. 101-147) amended section 17(d) of the Richard B.
Russell National School Lunch Act (NSLA; 42 U.S.C. 1766(d)) by adding a
new paragraph (2)(A) which requires the Department to ``develop a
policy that allows institutions providing child care * * *, at the
option of the State agency, to reapply for assistance * * * at 2-year
intervals.'' It also required that State agencies choosing this option
must ``confirm on an annual basis'' that each participating institution
is in compliance with the licensing and approval requirements set forth
at section 17(a)(1) of the NSLA (42 U.S.C. 1766(a)(1)). Later, section
116(b) the Healthy Meals Act amended section 17(d)(2)(A) (42 U.S.C.
1766(d)(2)(A)) of the NSLA by extending the two-year CACFP
reapplication interval to three years.
Were Three-Year and One-Year Applications the Only Options Addressed in
the Proposed Rule?
No. Although the NSLA requires reapplication for participation at
least once every three years, it does not require annual or biennial
applications to be the only alternatives to the triennial option.
Therefore, we proposed to remove the references to an annual
application found in the introductory paragraphs of Sec. 226.6(b) and
226.6(f), and in Sec. 226.7(g), and to further revise Sec. 226.6(b)
to require each institution to reapply for participation at a time
determined by the State agency, as long as not less than one nor more
than three years have elapsed since its last application approval. This
gives State agencies the option to consider whether the annual renewal
of applications represents the most efficient and effective means of
carrying out their Program responsibilities, and to consider any length
of application between 12 and 36 months. In addition, we proposed that,
if an institution submits a renewal application, and the State agency
has not conducted a review of that institution since the last agreement
was signed or extended, but has reason to believe that such a review is
immediately necessary, the State agency has the option of approving the
institution's application for a period of less than one year, pending
the completion of such a review.
How Did Commenters' Respond to These Proposals?
Overall, commenters were in favor of our interpretation of the
NSLA's intent--that State agencies should have the flexibility to
require institutions to submit re-applications at any time between one
and three years after the previous application. In total, 47
respondents (19 State agencies, 14 sponsors or other institutions, 9
National or State organizations, 3 providers, and 2 commenters whose
organizational affiliation was unclear) commented specifically on this
provision, and all but one (who wanted a 2-year maximum on
applications, although the NSLA now permits up to three years at State
agency discretion) were in favor of our interpretation. In addition, we
received about 350 general comments commending the proposal's increased
flexibility regarding applications, which in part refers to our
proposals to lengthen the time between applications and to reduce the
amount of information required to be re-submitted on renewal
applications.
However, although there was consensus that 12 months should
generally be the minimum amount of time between applications, there was
some disagreement about the circumstances warranting a State agency's
occasional use of a less-than-12-month period before requiring a re-
application. As previously mentioned, Sec. 226.6(b)(1)(ii)(C) of the
proposed rule required State agencies to establish re-application
periods of between 12 and 36 months for renewing institutions except in
one instance: When the State agency has not conducted a review of that
institution since the last application was approved, but has reason to
believe that such a review is immediately necessary. This might occur,
for example, when a State agency was reviewing a sponsoring
organization's re-application, the sponsor had not been reviewed during
the period of its prior application, and the State agency had concerns
about the sponsor's management practices.
Six State agency staff commented on this provision, and five of
them wanted us to permit State agencies to renew contracts for less
than 12 months under other circumstances as well. These five commenters
believed that the CACFP regulations should provide State agencies with
the flexibility to determine whether there are unusual circumstances
warranting the use of a less-than-12-month reapplication period. We
appreciate State agencies' desire for maximum flexibility. We do not
believe that requiring an institution to re-apply in less than 12
months should be a frequent occurrence. However, State agencies'
experience with circumstances warranting more frequent scrutiny of
institutions' applications indicate a need for greater flexibility. We
are, therefore, convinced that there may be unusual circumstances in
which a re-application in less than 12 months could be warranted.
Accordingly, we have removed reference to the single circumstance
warranting a reapplication period of less than 12 months, and
substituted language clarifying that, under unusual circumstances, a
State agency may require an institution to re-apply in less than 12
months. As a result of the re-organization of this section of the
regulations by the interim rule published on June 27, 2002, and the
further reorganization of Sec. 226.6(b) made in this rule in order to
combine the application provisions of the two rules, the provision now
appears in the
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introductory paragraph of Sec. 226.6(b)(2), with regard to renewal
applications, and at Sec. 226.6(b)(4)(ii)(B), with regard to the
length of the agreement. Readers should again note that the interim
rule published on June 27, 2002, specifically requires at Sec.
226.6(c)(2)(iii)(D) the use of short-term extensions of an agreement
when the State agency denies a renewal application or discovers a
serious deficiency during its review of an applicant's renewal
application.
Did the Department Propose Other Changes Related to the Application
Process? What Were Commenters' Responses to These Provisions?
Yes. We proposed six additional changes to the rules governing
institution applications. Five of these are discussed below, while the
sixth is addressed in part I(B) of this preamble.
(1) Reorganization of application requirements at Sec. 226.6(b)
and 226.6(f).--First, we proposed reorganizing Sec. 226.6(b) and
226.6(f), so that Sec. 226.6(b) sets forth the broad requirements for
applications submitted by institutions, and Sec. 226.6(f) specifies
the frequency at which the institution would be required to update the
licensing and approval information, as required by law, as well as
other information contained in its original application. Respondents to
the proposed rule did not comment on this proposed organizational
change, and it therefore appears in this interim rule substantially as
it was presented in the proposed rulemaking (except that Sec. 226.6(b)
has been further re-organized to accommodate the regulatory distinction
between new and renewing institutions that is incorporated in this
rule. See paragraph (3), below).
(2) Reorganization of other application requirements.--Current
Program regulations at Sec. Sec. 226.6(b), 226.6(f), 226.7(g),
226.15(b), 226.16(b) and 226.23(a) all establish various requirements
for Program applications. Current Sec. Sec. 226.6(f)(1), (f)(2), and
(f)(3), and current 226.7(g) expand upon the requirements of Sec.
226.6(b)(1), (b)(5), and (b)(6) by describing the information to be
included in the Program agreement and the management plan, and by
establishing requirements pertaining to the State agency's review and
approval of the sponsoring organization's management plan and the
institution's budget. Section 226.15(b) reiterates the annual
institution application requirements set forth in Sec. 226.6(b) and
requires that nonprofit institutions submit evidence of their tax
exempt status in accordance with Sec. 226.15(a). Section 226.16(b)
reiterates the annual application requirements pertaining to sponsoring
organizations, and Sec. 226.23(a) requires that each institution
submit, and that State agencies approve, as part of the annual
application process, a free and reduced-price policy statement to be
used in all child care and adult day care facilities under the
institution's supervision.
We proposed to consolidate more of these requirements in Sec.
226.6(b) so that State agencies and institutions could more easily
refer to them during the application process. Respondents to the
proposed rule did not comment on this proposed organizational change,
and it therefore appears in this interim rule substantially as it was
presented in the proposed rulemaking (except that Sec. 226.6(b) has
been further re-organized to accommodate the regulatory distinction
between new and renewing institutions that is incorporated in this
rule. See paragraph (3), below).
The proposed modifications to the wording of the application
requirements set forth in current Sec. 226.6(b)(1) through (b)(18)
were necessitated by the distinctions being drawn between new
applicants and renewing institutions. In addition, we proposed to
modify current Sec. 226.6(b)(10) (which requires the institution to
state on its application whether it wishes to receive a full, partial,
or no advance payment) due to PRWORA's change to the requirement that
State agencies make advance payments available to Program institutions
upon request. Furthermore, under our proposed revision to the
application process, State agencies would continue to be responsible
for distributing to, and collecting from, participating institutions
certain Program information and data, and for ensuring that the CACFP
is being operated in compliance with all regulatory requirements. In
the proposed rule, these additional State agency responsibilities for
information collection or dissemination outside of the application
process were grouped into three paragraphs within revised and
reorganized Sec. 226.6(f). Section 226.6(f)(1) would delineate
responsibilities, including the collection or distribution of certain
information, which State agencies would be required to perform
annually; Sec. 226.6(f)(2) would list State agency responsibilities to
be performed at least once every three years; and Sec. 226.6(f)(3)
would enumerate those State agency responsibilities that could be
carried out at intervals established at the State agency's discretion,
though not more frequently than annually.
(3) Distinction between application requirements for new and
renewing institutions.--We also proposed to differentiate between the
application requirements for ``new'' and ``renewing'' institutions. We
did so because our experience, and that of our State agencies,
indicates even greater attention needs to be paid to the applications
of those institutions applying for the first time and those re-entering
the Program after a lapse in participation, so that they will
successfully operate the Program from the start. The need to ensure
that new applicant institutions are brought into the Program
successfully is best served by a regulation that establishes specific
minimum requirements for applications submitted by new institutions,
but that allows State agencies greater flexibility in dealing with
renewal applications. To that end, the proposed rule included very
specific application requirements for new institutions but, for
renewing institutions, proposed to specify primarily that the
reapplication be evaluated on the basis of the institution's ability to
properly operate the Program in accordance with the performance
standards, as demonstrated in its management plan (if the institution
is a sponsoring organization), its budget, and its prior record in
operating the Program.
All 21 respondents who commented on this provision (17 State
agencies, 3 sponsors or other institutions, and 1 State organization)
were in favor of this change. Because it was necessary to create a
regulatory distinction between new and renewing institutions in order
to fully implement some of the institution eligibility provisions of
ARPA, we have already included these definitions at Sec. 226.2 of the
regulations in the interim rule published on June 27, 2002. As a result
of this rule's interaction with the 2002 interim rule, this rule also
requires that the renewal application include information on the past
performance, criminal conviction, and presence on the National
Disqualified List of the institution or its principals.
As a further result of the interaction between the two interim
rules, and in order to fully incorporate the distinctions between new
and renewing institutions in the regulatory text on application review,
the specific application requirements now appear at Sec. 226.6(b)(1)
and (b)(2) of this interim rule for new and renewing institutions,
respectively. This means that the annual regulatory requirements for
all applications that currently appear at Sec. 226.6(b)(2) through
(b)(18) are reorganized by this rule into requirements for new and
renewing institutions at Sec. 226.6(b)(1) and (b)(2), respectively;
the requirements for State
[[Page 53506]]
agency notification of applicants that currently appear in the
introductory paragraph of Sec. 226.6(b) are relocated by this rule to
Sec. 226.6(b)(3); and the provisions on agreements that currently
appear at Sec. 226.6(b)(1) and 226.6(f)(1) are relocated by this rule
to Sec. 226.6(b)(4). Finally, the basic requirement that State
agencies establish an application process, and the general requirements
for that process, are still included in the introductory text of Sec.
226.6(b).
The movement of the application and agreement requirements formerly
located at Sec. 226.6(f) to Sec. 226.6(b) of this rule allows us to
use the new Sec. 226.6(f) primarily as a place to specify the
intervals at which a State agency must disseminate information to, or
collect information from, participating institutions, regardless of the
interval at which the State agency has opted to require re-
applications. For example, if a State agency chose to require that
sponsoring organizations reapply every two years, it would still be
required to collect a budget from each sponsoring organization
annually, in accordance with Sec. 226.6(f)(1).
(4) Requirement that State agencies consult the National
disqualified list.--The results of OIG audits have convinced us that
State agencies must be explicitly required to consult the National
disqualified list (previously called the seriously deficient list but
renamed in the interim rule published on June 27, 2002) when reviewing
any institution's new or renewal application for participation. In
several instances, OIG found that an institution or individual
terminated from CACFP for cause and placed on the National disqualified
list by one State was subsequently approved to participate by another
State. Therefore, we proposed regulatory language to require a State
agency to consult the National disqualified list whenever it reviews
any institution's new or renewal application, and to deny the
institution's application if either the institution, or any of its
principals, is on the National disqualified list. [Please note that the
June 27, 2002, interim rule requires State agencies to consult the
National disqualified list when sponsors apply on behalf of facilities
as well.]
A total of 15 respondents (14 State agencies and one sponsor/
institution) commented on this proposed change. While all were
supportive of this provision, nine of the commenters expressed
reservations about the practicality of using the National disqualified
list for this purpose. Their primary objection was that the current
hard-copy (paper) version of the list was lengthy, poorly organized,
and difficult to use. However, since those comments were submitted, we
have addressed this issue by developing an electronic version of the
National disqualified list and making it available to State agencies
and sponsoring organizations.
Because the consequence of an institution or individual being on
the National disqualified list had to be clarified in the first interim
rule published on June 27, 2002, as part of the full implementation of
ARPA, that rule required (at Sec. 226.6(b)(12)) a State agency to
consult the National disqualified list whenever it reviews any
institution's application to participate and to deny the institution's
application if either the institution, or any individual associated
with the institution in a principal capacity, is on the National
disqualified list. In the proposed rule published on September 12,
2000, this provision had been placed at Sec. 226.6(b)(1). In this
interim rule, which further re-organizes Sec. 226.6(b), that provision
will now appear at Sec. 226.6(b)(1)(xi) and (b)(2)(ii) for new and
renewing institutions, respectively.
(5) Length of Program agreements between State agencies and
institutions.--Under the current regulations at Sec. 226.6(b)(1) and
226.6(f)(1), renewal of an institution's Program agreement is required
as part of the annual reapplication process. These provisions were
established prior to the legislative change to section 17 of the NSLA
that now gives State agencies the option to take applications from
participating institutions no less frequently than every three years.
Prior to the enactment of the Goodling Act, the NSLA did not
specify the duration of the Program agreement between the State agency
and the institution. However, section 102(d) of the Goodling Act
amended section 9(i) of the NSLA (42 U.S.C. 1758(i)) to require a State
agency that administers any combination of the child nutrition programs
(i.e., the National School Lunch, School Breakfast, Child and Adult
Care Food or Summer Food Service Programs) to enter into a single
permanent agreement with a school food authority that administers more
than one of these programs. The NSLA does not specify the duration of
the agreement between the State agency and non-school institutions.
Consistent with section 17(d)(2) of the NSLA (42 U.S.C.
1766(d)(2)), which permits State agencies to take applications every
three years, we proposed that Program agreements for non-school
institutions should be in effect for the period of the institution's
application approval (i.e., generally, for a period between one and
three years). Therefore, the proposed rule continued to link the length
of the Program application and agreement for non-school institutions,
while requiring State agencies to enter into permanent agreements with
institutions that are schools and that, in accordance with the Goodling
Act, operate more than one child nutrition program administered by the
same State agency. (Readers should note that the recent legislative
change requiring permanent agreements between sponsoring organizations
and family day care homes is not addressed in this interim rule, but
will be included in a subsequent rulemaking.)
A total of 369 comments were received on this provision. These
responses came from 18 State agency commenters, 241 sponsoring
organizations and other institutions, 10 State and National
organizations, 57 providers, and 43 commenters whose organizational
affiliation could not be determined. The vast majority of commenters
(363 out of 369) believed that we should reconsider the possibility of
having permanent agreements for all types of institutions participating
in CACFP. Primarily, these respondents noted that the existence of a
permanent agreement was a small but meaningful reduction of paperwork
for State agencies and institutions. In addition, some State agency
commenters noted the potential difficulty of having as many as three
different lengths of agreement in effect for different types of
institutions (e.g., permanent where required by the Goodling Act, one-
year agreements with sponsoring organizations, and three-year
agreements with independent centers) if this provision were implemented
as proposed.
The primary reason that we proposed to have agreements expire at
the time of application renewal was our belief that not renewing an
agreement linked to a denied re-application would be less procedurally
burdensome to State agencies than going through the serious deficiency
process. However, in drafting the interim rule implementing the CACFP
changes mandated by ARPA, we determined that section 17 of the NSLA now
requires State agencies to follow the same procedures for denying
renewal applications as for terminating a participating program. That
is, if a re-applying institution were determined to be seriously
deficient during the review of its application, it would still have the
opportunity to take corrective action. Then, if corrective action was
not taken, the State agency would propose to terminate the
institution's agreement, and the institution would have an
[[Page 53507]]
opportunity for an administrative review prior to the State's formal
termination of the agreement. During this period, the institution's
agreement would be temporarily extended for a brief period, until the
completion of the administrative review. Similarly, if the State agency
denied the renewal application for reasons unrelated to a serious
deficiency (e.g., the institution failed to submit all required
information in its renewal application), the institution's agreement
would be temporarily extended until the completion of the
administrative review. Thus, as a result of the changes mandated by
ARPA, it is no easier to terminate an institution's participation by
denying their renewal application than by terminating their
participation in the middle of an agreement. Therefore, there is no
compelling reason to link the time interval between application and re-
application to the length of the agreement.
Accordingly, this interim rule modifies Sec. 226.6(b)(4)(ii)
[proposed Sec. 226.6(b)(2)(ii)] to permit State agencies to enter into
permanent agreements with any institution, and to require a single
permanent agreement between the State agency and any school food
authority that administers more than one child nutrition program. Also,
the requirements pertaining to the minimum length of the agreement have
been modified to accommodate the possible need for short-term
extensions of the agreement during an institution's appeal of an
application denial or a proposed termination, in cases where the State
agency chooses not to utilize a permanent agreement.
Did You Receive Comments on Any of Your Proposed Changes to the
Application or Related Requirements at Current Sec. 226.6(b) and
226.6(f) for New and Renewing Institutions?
Yes. The comments on these proposed changes and our responses are
detailed below.
Current Sec. 226.6(b)(1): Program agreement [proposed Sec.
226.6(b)(2)].-- See the previous discussion concerning the length of
the Program agreement entered into between the State agency and
institutions.
Current Sec. 226.6(b)(2): Center requirements pertaining to free
and reduced-price eligibility [proposed Sec. 226.6(b)(1)(i)(A) and
226.6(f)(1)].-- The current regulations at Sec. 226.6(b)(2) require
that centers submit current free and reduced-price eligibility
information annually. We proposed that new independent centers and new
sponsors of centers would continue to be required to submit such
information to the State agency with their initial application. In
addition, we proposed that collection of this information by the State
agency would be required annually at proposed Sec. 226.6(f)(1), to
enable the State agency to use this information to construct an annual
claiming percentage or blended rate for each participating child care
center in accordance with Sec. 226.9(b).
We received two comments on these proposed changes, both from State
agencies. One favored the change stating that, since the information is
reported at least annually to enable the calculation of a blended rate
or claiming percentage, it is not necessary that it be included in a
renewal application. A second commenter expressed reservations about
the requirement for new centers to include this information with the
application, stating that the center would not know its numbers at the
time it applied. However, we concluded that this information would have
to be known by the center sometime during the application process,
prior to the execution of a formal agreement between the center and the
State agency, so that accurate claims could be submitted.
Accordingly, we have adopted this regulatory language as proposed
in this interim rule. The provision will appear at Sec. 226.6(b)(1)(i)
for new institutions. Although renewing institutions will not be
specifically required to include this information on their renewal
applications, the State agency will be required to collect the
information annually in accordance with Sec. 226.6(f)(1)(v), in order
to construct a blended rate or claiming percentage for each center.
Current Sec. 226.6(b)(3) and 226.6(f)(11): Family day care home
sponsoring organization requirements for submission of enrollment
information [proposed Sec. 226.6(b)(1)(i)(B)].-- Current Sec.
226.6(b)(3) requires sponsors of family day care homes to annually
provide aggregate enrollment information for the homes they sponsor and
to confirm the eligibility of providers' children for free and reduced-
price meals. We proposed that this requirement would be maintained for
new sponsoring organizations of family day care homes. New family day
care home sponsors would be required to provide an estimate of their
annual aggregate enrollment for planning purposes. Meanwhile, State
agencies could choose to include or exclude this requirement from
sponsoring organizations' renewal applications. We proposed to delete
the annual data reporting requirements pertaining to tier I and tier II
homes and meals at current Sec. 226.6(f)(11). The fact that this more
detailed information on home participation (children in tier I, tier
II, and mixed homes) is now collected monthly, on the FNS-44 form,
means that sponsoring organizations already fulfill this requirement.
Again, we received two comments on these proposed changes, both
from State agencies. One commenter stated that we should follow the
same approach for centers and homes, which we did (new institutions
include this information on their initial application, renewing
institutions do not do so because the information is already being
captured on monthly reports for homes and annually for centers). The
other commenter expressed reservations about the requirement for new
home sponsors to include this information with the application, stating
that the new home sponsor would not know these numbers at the time it
applied. However, new family day care home sponsors must have an
accurate count of homes in order to make administrative budget
projections and to demonstrate that they will have adequate revenue,
from administrative reimbursement and any other sources, to be
financially viable. Although enrollment information on the children
participating in each of these homes will fluctuate, it will
nevertheless be available sometime during the application process,
either at the time the new sponsor submits an application or, at the
least, prior to the beginning of their actual Program participation.
The regulation will, therefore, require a new home sponsor to include
this information as part of its initial application.
Accordingly, we have adopted this regulatory language as proposed
in this interim rule. In this interim rule, which further re-organizes
Sec. 226.6(b), the provision will appear at Sec. 226.6(b)(1)(ii) for
family day care home sponsors. Renewing home sponsors will not be
specifically required to include this information on their renewal
applications. They will, of course, be annually required to estimate
the number of homes they will sponsor in the coming year in order to
revise their administrative budget.
Current Sec. Sec. 226.6(b)(4), 226.15(b)(5), and 226.23(a):
Nondiscrimination policy statement and media release [proposed
Sec. Sec. 226.6(b)(1)(i)(C), 226.6(b)(1)(ii)(B), 226.6(f)(1)(vii),
226.6(f)(3)(iii), and 226.23(a)].-- Current Sec. Sec. 226.6(b)(4),
226.15(b)(5), and 226.23(a) require the submission of a
nondiscrimination policy statement, a free and reduced-price policy
statement, and a media release as part of the annual application. The
wording of this requirement was altered slightly in the
[[Page 53508]]
proposed rule to require that each new institution submit its free and
reduced-price policy statement, its nondiscrimination policy statement,
and a copy of its media release announcing the Program's availability.
Because section 722 of PRWORA prohibited institutions from being
required to re-submit the policy statement unless it was substantively
changed, proposed Sec. 226.6(b)(1)(ii)(B) prohibited State agencies
from requiring resubmission of the free and reduced-price policy
statement in the renewal application unless the institution made
substantive changes to the statement. However, we also proposed that
all institutions would continue to be required at Sec.
226.6(f)(1)(vii) to annually submit to the State agency documentation
that they had issued a media release which informed the public of the
Program's availability, and State agency collection of the
nondiscrimination statement would be done on an as needed basis (i.e.,
only when the institution made substantive changes) under proposed
Sec. 226.6(f)(3)(iii). The relocation of these requirements to Sec.
226.6(f) also allowed us to propose deletion of the current
requirements at Sec. 226.15(b)(5). Finally, Sec. 226.23(a) proposed
to eliminate the requirements for the institution to submit a free and
reduced-price policy statement in its renewal application, in order to
conform to the requirements of PRWORA.
We received a total of eight comments on these proposals, seven
from State agencies and one from a sponsor/institution. All eight
commenters approved of these proposed changes, but suggested
modifications to the regulatory wording. Seven of these respondents
stated that the regulations should explicitly provide State agencies
with the option to issue a Statewide media release on behalf of all
institutions in the State. We addressed this issue in guidance dated
September 18, 1996, but we agree that it also makes sense to include
reference to this option in the regulatory language. Another commenter
pointed out that, although our preamble discussion spoke of limiting
changes to the nondiscrimination statement to times when the
institution's policy changed, the regulatory language itself permitted
State agencies to ask for an updated nondiscrimination statement on an
as-needed basis, which could be as often as annually. We agree with
this commenter that there is no compelling reason for the State agency
to require this document to be submitted more frequently than the free
and reduced-price policy statement (i.e., only when the institution
makes changes to the nondiscrimination statement). For that reason, we
have removed reference to the nondiscrimination statement that had
appeared at proposed Sec. 226.6(f)(3)(iii).
Accordingly, this interim rule incorporates these modifications as
described above. In this interim rule, which further re-organizes Sec.
226.6(b), the application requirements for submission of a
nondiscrimination statement and a media release by new institutions
will appear at Sec. 226.6(b)(1)(iii). This section of the rule, as
well as Sec. Sec. 226.6(f)(1)(vii) and 226.23(d), will also
specifically acknowledge that State agencies may either require
institutions to issue an annual media release, or may issue a Statewide
media release on behalf of all their institutions. State agencies will
be prohibited (at Sec. Sec. 226.6(b)(2), introductory paragraph, and
226.23(a)) from requiring an institution to submit, as part of a
renewal application, an updated nondiscrimination statement or a free
and reduced-price policy statement, unless the institution makes
changes to either statement. This would not, of course, prevent a State
agency from asking for copies of these items during reviews or at other
appropriate times.
Current Sec. 226.6(b)(5) and 226.6(f)(2): Sponsoring organization
management plans [proposed Sec. 226.6(b)(1)(i)(D),
226.6(b)(1)(ii)(A)(1) and 226.6(f)(2)(ii)].--The current requirement at
Sec. 226.6(b)(5), under which sponsoring organizations must annually
submit a complete management plan as part of their application, was
moved to proposed Sec. 226.6(b)(1)(i)(D), governing the submission of
applications by new institutions, as was the substance of current Sec.
226.6(f)(2), which details the specific elements which must be included
in a sponsor's complete management plan. Because it is such a critical
document in establishing a sponsoring organization's ability to meet
the statutorily-mandated eligibility criteria of financial viability,
administrative capability, and internal controls for accountability, we
also proposed to specifically require that a complete management plan
again be submitted as part of sponsoring organizations' renewal
applications. This requirement was at proposed Sec. Sec.
226.6(b)(l)(ii)(A)(l) and 226.6(f)(2)(ii).
Because of this proposal to require submission of a complete
management plan with the renewal application, we proposed to leave more
frequent submissions of a partial or complete management plan to the
State agency's discretion, and to include the requirement to submit the
complete management plan as part of the renewal application at revised
Sec. Sec. 226.6(b)(2)(i) and 226.6(f)(2)(ii). This means that each
State agency would be required to collect a complete management plan
from sponsors no less frequently than every three years, but could
require submission of the complete management plan as often as
annually. The only portion of the management plan that this rule
requires to be updated annually is the sponsoring organization's
administrative budget, as discussed below. Of course, justification for
changes to a sponsoring organization's budget assumptions might also
require amendments to other portions of the management plan dealing
with staffing, projected growth or decline in the number of facilities
sponsored, or other factors.
We received no specific comment on this reorganization or on the
requirements pertaining to the periodic submission of management plans.
Accordingly, this interim rule incorporates the changes proposed with
regard to State agency review of management plans. Because of the
further reorganization of Sec. 226.6(b) in this interim rule, these
provisions now appear at Sec. Sec. 226.6(b)(1)(iv), 226.6(b)(2)(i),
and 226.6(f)(2)(ii).
Current Sec. Sec. 226.6(b)(6), 226.6(b)(18)(i)(C), 226.6(f)(3),
226.7(g), and 226.15(b)(3): Institutions budgets [proposed Sec. Sec.
226.6(b)(1)(i)(E), 226.6(b)(1)(ii)(A)(1), 226.6(f)(1)(vi),
226.6(f)(3)(i), and 226.7(g)].--Current Sec. Sec. 226.6(b)(6) and
226.15(b)(3) require institutions to annually submit budgets with their
application. Current Sec. Sec. 226.6(b)(18)(i)(C), 226.6(f)(3) and
226.7(g) require the State agency to review and approve budgets; to
limit the allowable administrative costs of family day care home
sponsoring organizations to the administrative costs in their approved
budgets; to limit center sponsors' administrative costs to 15 percent
of the meal reimbursement estimated to be earned by its sponsored
centers; and to establish administrative cost limits for other
institutions [e.g., independent centers and sponsors of centers] as it
sees fit.
We proposed to continue requiring, at proposed Sec.
226.6(b)(1)(i)(E) and (b)(1)(ii)(A)(1), that both new and renewing
institutions administrative budgets for State agency approval with
their applications. In addition, we proposed at Sec. 226.6(f)(1)(vi)
that revised budgets be submitted for State agency review and approval
by all sponsoring organizations each year, and at
[[Page 53509]]
proposed Sec. 226.6(f)(3) that the budgets of independent centers be
submitted as frequently as the State agency deems necessary. [Note:
routine adjustments to annual budget projections are reviewed by State
agencies for all CACFP institutions on an ongoing basis, in accordance
with Sec. 226.7(g)]. Finally, the reference to annual budgets
currently found in Sec. 226.7(g) would be deleted, since budgets for
independent centers would no longer be required on an annual basis.
However, all budgets, whenever submitted, would be required to
demonstrate the institution's ability to manage Program funds in
accordance with this part, OMB circulars, FNS Instruction 796-2, and
the Department's Uniform Financial Management Requirements.
Finally, to underscore the importance of the State agency's review
of the institution's budget, we also proposed to specifically state
that all approved costs in the budget must be necessary, reasonable,
allowable, and allocable in accordance with Department financial
management regulations, OMB circulars, and the CACFP Financial
Management Instruction. The audits conducted by OIG revealed State
agency review of institution budgets to be a particular weakness in
some States, and it is important to emphasize the purpose of the budget
review and the budget amendment process in the regulatory text itself.
[Note: several references to ``administrative budgets'' in the proposed
rule have been changed to ``budgets'' in this interim rule, to clarify
that State agencies must also review the operating cost budgets of
independent centers, in order to ensure that the center has properly
planned a food service for the number of children and meals it proposes
to serve.]
We received a total of 383 comments on this provision, although 357
of these were comments that we inferred to be about the budget
submission and budget review process. These 357 respondents stated, in
reference to our overall changes to the application process at Sec.
226.6, that the regulations should clarify that the authority and
responsibility for managing day-to-day Program operations, including
internal decision-making such as staff hiring, is retained by the
sponsoring organization, unless the sponsoring organization is
operating under a corrective action plan. Many of these commenters
further stated that, once sponsoring organizations have demonstrated
their administrative capacity, they should be expected to manage their
own programs.
This comment appears to reflect opposition to the requirements for
submission of information needed to assess an institution's viability,
capability, and accountability through its management plan and/or
budget. This raises the concern that, prior to this, the administering
agency in some States was not adequately overseeing sponsor operations,
especially in its review of a sponsor's management plan and budget.
Additionally, we are also concerned with the commenters' apparent
belief that close State agency oversight of a sponsoring organization
or any institution participating in CACFP constitutes interference with
the institution's management prerogatives.
As subgrantees of a Federal program administered by State agency
grantees, sponsoring organizations should expect that State agencies
will closely monitor their expenditure of public funds. Although many
sponsoring organizations are private entities, their private status
does not invalidate their responsibility for proper use of Federal
funds. The State agency has every right, and the clear responsibility,
to closely oversee the sponsor's use of pass-through Federal funds. How
the State agency chooses to accomplish its oversight responsibility
will vary, and will be a function of management style, State resources,
and other factors, including the State agency's experience with CACFP
institutions that have not properly managed the CACFP. There is nothing
in the proposed rule, or in this interim rule's requirements pertaining
to State agency review of applications, that constitutes interference
with a sponsor's ability to manage its day-to-day operations. There are
simply Program requirements that must be implemented at the State and
local level, in order to ensure the proper delivery of Program meals to
children and the proper expenditure and management of Federal funds.
Of the remaining 26 comments on this provision, 21 were from State
agencies and five were from sponsors or other institutions. Seven
respondents (5 State agencies and 2 sponsors/institutions) supported
all of the proposals, while the remainder requested modifications to
the regulatory language we proposed. These 19 suggested changes
included: four commenters who believed that sponsors of affiliated
centers (that is, sponsored centers which share the same legal identity
as the sponsoring organization) should be required to submit a budget
every three years, while sponsors of unaffiliated centers should be
required to submit budgets annually, like sponsors of family day care
homes; eight commenters who believed that independent centers and
sponsors of affiliated centers should never be required to submit an
administrative budget, because they did not receive a specific portion
of the meal reimbursement to cover their administrative costs; three
commenters who stated that the references to necessary costs in the
regulatory language concerning budgets established an arbitrary and
subjective standard, and were not consistent with Departmental and
government-wide requirements that budget items be reasonable,
allowable, and allocable; and four other commenters who requested that
we require budgets to include projected CACFP earnings and the source
of funding for Program costs over and above that covered by the CACFP
reimbursement, and that we establish a percentage threshold below which
an institution would not be required to file a budget amendment.
It is inappropriate to establish separate regulations for budgets
submitted by sponsors of affiliated and unaffiliated centers at this
time. Therefore, this rule continues to require that all sponsoring
organizations (whether sponsors of homes or of affiliated or
unaffiliated centers) annually submit an administrative budget.
However, we agree that there was some ambiguity with regard to the
requirement for renewing institutions to submit a budget, since we also
proposed at Sec. 226.6(f)(3)(i) that State agencies could require
budgets from renewing independent centers (which are also institutions)
as often as they saw fit. This interim rule will therefore clarify that
all renewing sponsors are required to submit budgets with their renewal
applications, but that State agencies are free to establish less
frequent requirements for budget submission by independent centers
(consistent with Sec. 226.6(f)(3)(i)).
With regard to the reference to necessary costs, several commenters
incorrectly stated that Office of Management and Budget Circulars
defining cost principles for governments and nonprofit organizations do
not mention necessity as a factor to be assessed in determining
allowability of cost. In fact, Circular A-87, parts (C)(1)(a) and
(C)(2)(a), and Circular A-122, part (A)(3)(a), both define allowable
costs as costs that are necessary and reasonable. Therefore, this
interim rule incorporates the regulatory language proposed at Sec.
226.6(f)(1)(vi) requiring sponsors' budgets to include enough detailed
information to allow the State agency to determine the allowability,
necessity, and reasonableness of all proposed expenses.
Finally, we agree with the commenters who suggested that the
requirements for the administrative
[[Page 53510]]
budget should explicitly refer to estimated CACFP earnings, as well as
proposed expenditures, and the appropriate change has been made to
Sec. Sec. 226.6(b)(1)(iv)(C) and 226.6(f)(1)(vi) in this interim rule.
We therefore incorporated language stating that the sponsor's
administrative budget should include information on revenues derived
from CACFP administrative reimbursement, as well as other sources, to
illustrate how projected Program administrative expenses will be
funded.
Accordingly, this interim rule incorporates the changes proposed
with regard to budgets, as discussed above. Because of the further
reorganization of Sec. 226.6(b) in this interim rule, these provisions
now appear at Sec. 226.6(b)(1)(iv)(C), (b)(1)(v), and (b)(2)(i).
Current Sec. Sec. 226.6(b)(7), 226.15(b)(4), and 226.16(b)(3):
Licensing and Approval Information [proposed Sec. 226.6(b)(1)(i)(F)
and 226.6(f)(1)(viii)].--The current application requirements at
Sec. Sec. 226.6(b)(7), 226.15(b)(4), and 226.16(b)(3) require
documentation of licensing or approval to be submitted each year. As
previously noted, section 17(d)(2)(B) of the NSLA requires that State
agencies exercising the option to take applications at other than
annual intervals are nevertheless required to annually confirm that
each institution is in compliance with the licensing or approval
provisions of section 17(a) of the NSLA (42 U.S.C. 1766(d)(2)(B)).
Therefore, the proposed rule continued to require (at proposed Sec.
226.6(b)(1)(i)(F)) that new independent centers and facilities
sponsored by new institutions submit documentation of their licensure
or approval. The Department also proposed at Sec. 226.6(f)(1)(viii)
that State agencies be required to annually obtain from institutions or
facilities the licensure or approval status of any institution or
facility which is required to be licensed or approved.
We received two comments (one from a State agency and one from a
sponsor) on these proposals. One commenter asked that we permit the use
of exception lists to confirm continued licensing or approval.
We had specifically mentioned in the preamble to the proposed rule
that there are a variety of ways that State agencies may comply with
this requirement. In some States, the State CACFP agency and the State
licensing agencies compare automated lists to find CACFP providers who
are no longer licensed. In order to underscore that there are a number
of acceptable means of confirming licensing or approval, we have
modified the regulatory language at Sec. 226.6(f)(1)(viii). The other
commenter stated that licensing should only share information with
State agencies that was relevant to the institution or facility's
participation in the CACFP. This is a matter to be resolved at the
State level between the agencies responsible for licensing and CACFP.
Accordingly, this interim rule incorporates the changes previously
proposed at Sec. Sec. 226.6(b)(1)(i)(F) and 226.6(f)(1)(viii), with
the aforementioned modification to Sec. 226.6(f)(1)(viii). In this
interim rule, which further re-organizes Sec. 226.6(b), the provision
will appear at Sec. 226.6(b)(1)(vi) for new institutions.
Current Sec. 226.15(a) and (b)(1): Tax-exempt status information
[proposed Sec. 226.6(b)(1)(i)(G) and 226.6(f)(3)(iv)].--The current
application requirement at Sec. 226.15(b)(1) pertaining to the annual
demonstration of tax-exempt status simply reiterates the requirement at
Sec. 226.15(a) that all private nonprofit institutions must annually
demonstrate their tax-exempt status. As part of our reorganization of
institution application requirements, we proposed to relocate this
requirement at new Sec. 226.6(f)(3), meaning that State agencies could
require this information to be submitted by renewing institutions on an
as needed basis, but no more frequently than annually. We received no
comments on this proposed relocation and have incorporated the change
in this interim rule.
We also proposed that this requirement would be retained for new
sponsors at proposed Sec. 226.6(b)(1)(i)(G), and that the periodic
resubmission of such documentation should be at the State agency's
discretion (Sec. 226.6(f)(3)(iv)). However, the interim rule published
on June 27, 2002, inadvertently dropped this requirement from the
application requirements at Sec. 226.6(b).
Nine State agency commenters responded favorably to this proposed
change. We are, therefore, incorporating the changes as proposed. In
this interim rule, which further re-organizes Sec. 226.6(b), the
provision concerning the tax-exempt status of new institutions is re-
inserted into the regulations and will appear at Sec.
226.6(b)(1)(vii).
Current Sec. Sec. 226.6(b)(8) and 226.15(b)(6): Proprietary center
requirements [proposed Sec. 226.6(b)(1)(i)(H) and 226.6(f)(3)(v)-
(vi)].--Current regulations at Sec. Sec. 226.6(b)(8) and 226.15(b)(6)
set forth the application requirements for proprietary centers. Such
centers are permitted to participate in a given month only if at least
25 percent of their licensed capacity or enrolled participants receive
funding under title XX of the Social Security Act (42 U.S.C., 1397, et
seq.) We proposed to retain the requirement that a new applicant
proprietary center document its eligibility at proposed Sec.
226.6(b)(1)(i)(H). However, no similar requirement was included for
renewing institutions since, as a condition of their eligibility, such
centers are required to document compliance with the 25 percent
requirement each month. Therefore, we proposed to place the periodic
resubmission of such documentation at revised Sec. Sec. 226.6(f)(3)(v)
and 226.6(f)(3)(vi), since the State agency is already receiving this
information on a monthly basis as part of the claiming process.
We received a total of four comments on these proposals, two from
State agencies and two from sponsors. Two of these commenters supported
the proposed changes, while the two commenters who opposed the changes
misunderstood their intent, believing that we had eliminated the
requirement for monthly documentation of eligibility on the claim. In
fact, it is because State agencies receive monthly documentation of
eligibility on the claim that there is no need to address this matter
in any renewal application materials; however, a State agency that
wishes to require the periodic resubmission of this information may do
so in accordance with Sec. 226.6(f)(3).
Accordingly, this interim rule incorporates the proposed changes.
In this interim rule, which further re-organizes Sec. 226.6(b), the
provision will appear at Sec. 226.6(b)(1)(viii) for new institutions.
Current Sec. Sec. 226.6(b)(9), 226.6(f)(5) and (f)(6), and
226.6(h): Information on commodities [proposed Sec. 226.6(b)(1)(i)(J),
226.6(f)(3)(ii), and 226.6(h).--We proposed that the current
application requirement at Sec. 226.6(b)(9), under which institutions
are to annually indicate their preference for commodities or cash-in-
lieu of commodities, would be included in the requirements for new
applicants at proposed Sec. 226.6(b)(1)(i)(J) and in proposed Sec.
226.6(f)(3)(ii) as information that State agencies could subsequently
require to be submitted on an application on an as-needed basis. This
would provide State agencies with the flexibility to allow institutions
to submit additional information only when their initially-stated
preference had changed. The requirement for annual submission of this
information by institutions at current Sec. 226.6(h) would be deleted
by removing the first sentence and by
[[Page 53511]]
making conforming changes to the remainder of the paragraph. We also
proposed that the current requirements for State agencies to annually
inquire about an institution's preference for commodities or cash-in-
lieu of commodities, and to annually notify all institutions of foods
in plentiful supply, be moved from Sec. 226.6(f)(5) and (f)(6) to
revised Sec. 226.6(h).
We received eight comments on these proposed changes from six State
agencies. Two State agencies (four of the commenters) supported all of
the proposed changes, while the other four made suggestions for changes
to the proposed regulatory language. All four of these commenters
suggested modifications to proposed Sec. 226.6(h), which would require
State agencies to annually provide information to all institutions on
foods available in plentiful supply. These commenters either wanted the
requirement eliminated, in favor of having those institutions
interested in receiving surplus commodities contact the State agency,
or making the notification discretionary rather than mandatory. In
addition, one commenter objected to the requirement that new
institutions state their preference for commodities or cash-in-lieu of
commodities in their initial application, because he believed that
``most organizations are not capable of receiving commodities''.
However, current law at section 17(h)(1) of the NSLA requires State
agencies to make annual determinations regarding the amount of
commodities or cash in lieu of commodities needed by CACFP institutions
in that State. The State agency's determination of whether to request
cash in lieu of some or all of their commodity entitlement must,
according to the law, base that decision on the preferences of
participating institutions. Participating institutions can only make an
informed decision about their commodity preferences if they know which
commodities are in plentiful supply. Therefore, because of these
statutory requirements, the Department is unable to eliminate the
requirement for annual notification by the State agency of foods
available in plentiful supply and will in this interim rule make only
those changes that were proposed--to require new institutions to make
an initial statement of their commodity preference in their Program
application, then to permit State agencies to collect additional
information from institutions on their commodity preferences on an as
needed basis, whenever those preferences change.
Accordingly, this interim rule incorporates the proposed changes at
Sec. 226.6(h). In this interim rule, which further re-organizes Sec.
226.6(b), the requirement for new institutions to indicate their
preference for commodities or cash-in-lieu of commodities appears at
Sec. 226.6(b)(1)(ix).
Current Sec. 226.6(b)(10): Advance payment information.--Section
708(f)(2) of PRWORA amended section 17(f)(4) of the NSLA (42 U.S.C.
1766(f)(4)) by making payment of advances optional at the State
agency's discretion. Because a State agency could elect to issue no
advance payments whatsoever, we proposed to remove all references to
advances from the application requirements. Instead, we proposed to
relocate the current requirement at Sec. 226.6(b)(10) governing the
institution's election to receive advance payments to Sec.
226.6(f)(3)(vii), meaning that State agencies electing to distribute
advances could require eligible institutions to state their preferences
regarding advances on an ``as needed'' basis, but no more often than
annually.
We received no comments on our proposal to remove this provision
from Sec. 226.6(b). Substantive comments on the statutory change are
addressed in part IV(A) of this preamble, below.
Current Sec. 226.6(f)(4): Procurement requirements [proposed Sec.
226.6(j)]. Current Sec. 226.6(f)(4) requires State agencies to
annually determine that all meal procurements with food service
management companies are in conformance with bid and contractual
requirements of Sec. 226.22. Because this requirement has nothing to
do with the institution application process, we proposed to simply
relocate the provision from Sec. 226.6(f)(4) to Sec. 226.6(j) and to
delete the reference to annual determinations.
We received two comments from State agencies on this proposed
change. One commenter favored the change, while the other stated that
there should be greater uniformity in procurement requirements between
CACFP and the National School Lunch Program. This requirement (to
ensure that all food service management company contracts are
competitively procured) is, in fact, uniform in both the CACFP and the
NSLP, since both Programs are subject to government-wide requirements,
codified in Departmental regulations at 7 CFR part 3016, that grantees
and subgrantees promote competition in all procurements to the maximum
extent practicable. Accordingly, we have incorporated the proposed
change at Sec. 226.6(j) of this interim rule.
Current Sec. 226.6(f)(7) through (f)(10): Other State agency
responsibilities [proposed Sec. 226.6(f)(1)(i) through Sec.
226.6(f)(1)(iv) and Sec. 226.6(f)(3)(viii)].--We proposed to relocate
current Sec. 226.6(f)(7) through (f)(10), which deal with State agency
responsibilities regarding information made available to pricing
programs, the conduct of verification, and implementation of the two-
tiered reimbursement system for family day care homes. Current Sec.
226.6(f)(7), (f)(9), and (f)(10) were proposed to be relocated at
proposed Sec. Sec. 226.6(f)(1)(i) through 226.6(f)(iv), since they
relate to information which the State agency must provide annually to
some institutions. Current Sec. 226.6(f)(8), which relates to the
State agency's collection of verification as part of a review, was
proposed to be moved to Sec. 226.6(f)(3)(viii), and required that
verification be conducted as part of State agency reviews of
institutions mandated at Sec. 226.6(l).
We received no comments on this proposed reorganization of
information. Accordingly, this interim rule incorporates these changes
as proposed. Due to the publication of the earlier interim rule on June
27, 2002, the latter provision is now located at Sec. 226.6(m)(4).
B. State Agency Notification to Applicant Institutions
Prior to 1996, there were three requirements pertaining to the
notification of applicant institutions in section 17(d)(1) of the NSLA.
State agencies were required to: Notify the institution in writing of
its approval or disapproval within 30 days; notify the institution in
writing within 15 days if an incomplete application was submitted; and,
if an incomplete application was submitted, provide technical
assistance to help the institution complete its application.
Section 708(c) of PRWORA amended section 17(d)(1) of the NSLA by
removing the requirement that State agencies provide an institution
with technical assistance when the institution submitted an incomplete
Program application. Then, section 107(d) of the Goodling Act amended
section 17(d)(1) of the NSLA to require that a State agency notify an
institution of its approval or denial within thirty days after receipt
of a complete application. This gave a State agency 30 days from its
initial receipt of a complete application to either approve or deny the
application. The Conference Report accompanying the bill (House Report
105-786, October 6, 1998) encouraged State agencies to inform
applicants as quickly as possible if an application was incomplete upon
receipt. The September 12, 2000, rulemaking proposed to incorporate
[[Page 53512]]
these statutory changes at proposed Sec. 226.6(b)(1)(iii).
We received a total of 22 comments on these provisions (19 from
State agencies, one from a sponsor/institution, one from a State
organization, and one from a commenter whose organizational affiliation
could not be determined), 20 of which supported these changes. The two
commenters who suggested deadlines for actions that conflicted with the
NSLA were apparently not aware that we have no discretion to modify
these statutory provisions. Accordingly, these changes are incorporated
in this interim rule. Due to the further reorganization of Sec.
226.6(b) in this interim rule, the provisions have been incorporated
into the regulations at Sec. 226.6(b)(3).
Part II. State Agency and Institution Review and Oversight Requirements
What Were OIG's Recommendations for Changes to the Monitoring
Requirements?
As discussed above, OIG's national audit of the family day care
home component of CACFP made a number of recommendations for changes to
State agency and sponsoring organization monitoring requirements. Among
these were recommendations to require that:
Some or all sponsor reviews of day care homes and State
agency monitoring visits to homes be unannounced;
Routine parental contacts be made as part of State agency
and sponsor monitoring of day care homes, in order to verify children's
Program participation;
Sponsors and day care providers keep more detailed
information on enrollment forms, including a record of each child's
normal hours of care and normal places (i.e., at day care, school, or
home) of receiving meals throughout the day;
Minimum sponsor review requirements--including
reconciliation of enrollment, attendance, and meal claim data--be
established;
Sponsors routinely perform certain edit checks on all meal
claims submitted by their facilities; and
Minimum standards for State agency review coverage be
established.
This audit made two additional recommendations for changes to
general oversight requirements that are not specifically included in
the regulatory language dealing with monitoring. These include
recommendations that:
Program regulations clarify that facilities must not be
reimbursed for improper claims; and that
The Department take steps to minimize the possibility of
State agencies paying claims to day care homes that were based on the
provider's improper participation in the Food Stamp Program.
After the release of this national audit, OIG informally
recommended that the Department:
Address the matter of placing seriously deficient family
day care homes on a National list, much as the Department currently
maintains a list of seriously deficient institutions; and
Give State agencies explicit regulatory authority to limit
the transfer of family day care home providers from one sponsoring
organization to another.
Finally, the ``Operation Kiddie Care'' audit made an additional
recommendation related to sponsor monitoring: That the regulations
prescribe a maximum number of facilities for which each sponsor monitor
would have responsibility.
What Is FNS's Response to These Recommendations?
We largely concur with these formal and informal recommendations.
Implementation of these recommendations will aid our ongoing efforts to
improve Program management. Those audit and other informal
recommendations that subsequently were statutorily mandated by ARPA
have already been addressed in the interim rule published on June 27,
2002. The remaining seven recommendations are dealt with in this part
of the preamble, as are several discretionary changes that we proposed
with regard to sponsor review of facilities.
A. Household Contacts
What Did the OIG Audit Say About Household (Parental) Contacts?
OIG's audit of family day care home sponsoring organizations
revealed that fewer than one in six sponsors sampled made parental
contacts a part of their normal provider reviews. They recommended that
household contacts be made a routine part of a sponsoring organization
and/or State agency's review protocols in order to confirm their
child's enrollment and attendance, and the specific meals routinely
received by the child, at the family day care home being reviewed.
Did USDA Propose To Require That Sponsoring Organizations or State
Agencies Make Household Contacts?
We believe that it would be inappropriate to mandate that household
contacts be made routinely. However, we were (and remain) concerned
with OIG's finding that block claiming (i.e., claiming the same number
and type of meals served every day) by child care facilities often goes
unchallenged by sponsoring organizations. Therefore, we proposed a
system requiring that both sponsoring organizations and State agencies
use household contacts under certain circumstances (specifically, when
either determined that facilities had submitted block claims for 10 or
more consecutive days, or had claimed an inordinately high number of
meals for more than one day in a claiming period) in order to detect
and deter the type of fraud documented in recent audits and
investigations.
How Did Commenters Respond to These Proposals?
We received more comments (515) on various aspects of our household
contact proposals than we did on any other provision in the proposed
rule. (Note: comments on the related topic of requiring sponsoring
organizations to identify and review block claims as one type of claims
edit check are discussed in part II(D), of this preamble, below). Among
State agencies, institutions, and providers, there was almost universal
agreement that our proposed system of household contacts was overly
prescriptive and complex, and that implementation would be
administratively difficult and costly for both State agencies and
sponsoring organizations. Generally, most commenters also believed that
the system, as proposed, would result in the conduct of far too many
household contacts, requiring large administrative expenditures while
not efficiently targeting or identifying those providers whose claims
were most likely to be inaccurate.
More specifically, the vast majority of these commenters felt that
it would be more beneficial to permit sponsoring organizations and/or
State agencies to develop their own systems for making household
contacts, both in terms of the findings or events that would cause a
household contact to be conducted, and the procedures to be used in
making household contacts. Many of these commenters mentioned that a
trigger, or threshold, of 10 consecutive days of identical claims was
often not indicative of an inaccurate claim. These commenters stated
that, for a variety of reasons, providers in some areas regularly
accept sick children in care, thus making it far more likely
(especially if the home cares for a small number of children) to have
identical claims for extended periods of time.
While stressing that their preference was to have sponsoring
organizations or State agencies develop a household
[[Page 53513]]
contact policy appropriate to their particular circumstances, 349
commenters also offered specific ideas for possible modifications to
the household contact system that we had proposed. Many of these
comments suggested using a longer period of block claiming (generally
60 days, though a few suggested 30 or 90 days) to trigger a required
household contact. Commenters also suggested changes to the
requirements for the number of households to be contacted; the timing
of, and the requirements for, unannounced visits when parents failed to
respond or failed to corroborate the claim; and the means of notifying
and contacting the parents of children in care.
In addition, 29 comments were received from 20 State agencies and
nine sponsoring organizations on the proposed requirement for State
agencies to conduct household contacts in the periodic sample of
facilities reviewed as part of the State agency's review of a sponsor.
All 29 commenters were opposed to this proposal. Commenters believed
either that State agencies should never conduct household contacts, or
that a State agency should only conduct household contacts under
circumstances defined by the State agency.
In consideration of these concerns, and consistent with promoting
greater flexibility for State agencies in their management of the
Program, we have modified our proposals relating to the conduct of
household contacts. Household contacts provide a means of confirming
children's enrollment and attendance in care, which is critical to
ensuring the integrity of the CACFP meal claim. However, the commenters
have convinced us that there are many effective ways of establishing a
household contact system, and that each State agency is in the best
position to determine when a household contact must be made, either by
the State agency or by the sponsors in that State, and the procedures
for conducting household contacts. Because the development of these
systems by the State agency will take time, we have delayed
implementation of this provision until April 1, 2005. Therefore, this
interim rule requires that:
By April 1, 2005, each State agency develop a system that
defines the circumstances under which the State agency will make, and
the procedures it will use for conducting, household contacts as part
of the oversight of independent centers, or in its sample reviews of
sponsored facilities (Sec. 226.6(m)(5));
By April 1, 2005, each State agency develop a system that
defines the circumstances under which sponsors must make, and the
procedures sponsors must use in conducting, household contacts as part
of their review and oversight of participating facilities (Sec.
226.6(m)(5));
Sponsors comply with the requirements of the household
contact system established by the State agency (Sec. 226.16(d)(5));
and
The State agency include in its review of sponsors an
evaluation of the sponsor's implementation of this requirement (Sec.
226.6(m)(3)).
Although we considered the possibility of requiring State agencies
to submit these household contact systems to us for prior approval, we
ultimately decided that the best way for us to assess the systems was
in the context of the total review of State agency operations that
occurs during a management evaluation. We are taking this approach in
order to provide State agencies with maximum flexibility in adapting
their household contact systems to fit the particular needs of sponsors
and facilities in their State. However, we will require that, by April
1, 2005, State agencies document these systems in writing and submit
them to Food and Nutrition Service (FNS) regional offices. Once a State
agency's household contact system is operational, we will be able to
determine if it is adequate to help detect the existence of inflated
facility meal counts. Based on the results of our management
evaluations, we will, if necessary, provide assistance to State
agencies to help ensure that their household contact systems achieve
this important end. In addition, we will analyze the management
evaluation findings to determine whether they provide an effective
means of verifying children's attendance and whether the final rule
should include further requirements related to household contacts.
As a result of the above changes, this interim rule adds a
definition of ``household contact'' at Sec. 226.2 that specifies the
purpose of household contacts conducted in accordance with this broad
regulatory authority, but does not specify when or how household
contacts should be made. This will allow State agencies to determine
when household contacts must be made (whether by the State agency
itself or by its sponsors), and the procedures to be employed when
making household contacts.
For the purpose of implementing the requirement that sponsoring
organizations use block claiming as a mandatory edit check, we have
also added a new definition of ``block claim'' to Sec. 226.2 of the
regulations (see discussion in part II(D) of the preamble, below);
however, if a block claim is discovered in an edit check, this interim
rule requires that an unannounced visit, rather than a household
contact, be conducted.
Accordingly, this rule amends the definition of ``household
contact'' at Sec. 226.2; requires State agencies to establish systems
for making household contacts at the institution and facility levels,
and to review sponsors' implementation of these systems (at Sec.
226.6(m)(5) and (m)(3), respectively), as discussed above; and requires
sponsors (at Sec. 226.16(d)(5)) to comply with the requirements of the
household contact system established by the State agency.
B. Enrollment Forms
What Are the Current Regulatory Requirements Pertaining to Children's
Enrollment Forms?
The CACFP is primarily designed to provide nutritious meals to
children enrolled for care in licensed or approved child care
facilities. Parents or guardians of children in care generally fill out
an enrollment form that gives the child care provider legal permission
to provide care and often includes explicit permission to obtain
emergency medical care for the child. Program regulations at Sec.
226.15(e)(2) and (e)(3) require that each institution keep a record of
each child's enrollment, as well as copies of income eligibility forms
used to establish a child's eligibility for free or reduced-price meals
in child care centers or for tier I reimbursements in mixed tier 2
family day care homes. Section 226.16(a) specifically extends these
requirements to sponsoring organizations, while Sec. Sec.
226.17(b)(7), 226.18(e), 226.19(b)(8), and 226.19a(b)(8) state that
child care centers, family day care homes, outside-school-hours care
centers, and adult day care centers, respectively, must maintain
documentation of enrollment for each Program participant. (Please note
that there is no requirement for formal enrollment of children served
in the at-risk or homeless components of CACFP. Further discussion of
this issue is included in this part of the preamble, below.)
What Did the OIG Audit Find Regarding Enrollment Forms?
In its audit of family day care homes, OIG noted several serious
problems related to the information contained on enrollment forms. The
audit noted that
[[Page 53514]]
there is no current requirement that enrollment forms be updated on a
regular basis or that they contain an indication that the child's
parents had seen the form and verified its accuracy. The lack of such
requirements was identified as a factor contributing to the inflation
of meal counts by facilities. Without regular updates of enrollment
forms by parents, providers can more readily claim meals for children
no longer in care. This makes it much more difficult for sponsors and
State agencies to identify inflated meal counts. OIG also noted that
other useful information--such as a record of each child's normal hours
of care and the place (i.e., at day care, school, or home) where the
child normally receives each meal service throughout the day--is not
required to be on the enrollment forms. The audit recommended that
enrollment forms be updated annually, be signed by parents, and include
information that would assist reviewers in determining the current
number of children enrolled and in attendance at the home, and the
number and type(s) of meals normally received by each child while in
care.
What Did the Department Propose in Response to These Recommendations?
We proposed requiring that all enrollment forms capture certain
information in order to facilitate sponsoring organization reviewers'
comparison of current enrollment against attendance records and meal
claims. Specifically, we proposed to require that the enrollment form
include the child's normal hours in care and the meals usually received
in care by that child, and that the form be updated annually and signed
by a parent at each update. We did not propose any changes to Sec.
226.19a(b)(8) concerning enrollment forms for participants in adult day
care centers.
What Comments Did the Department Receive on These Proposed
Requirements?
We received a total of 63 comments on our proposed changes to the
requirements for enrollment forms: 31 from State agency commenters in
24 different States; 23 from sponsoring organizations or other
institutions; one from a national organization; one from a family day
care home provider; and seven from commenters whose affiliation could
not be determined.
Twenty-two (22) commenters expressed complete support for the
proposed changes (eight State agency commenters from seven States, six
commenters from sponsoring organizations or other institutions, one
from a provider, and seven from individuals whose institutional
affiliation could not be determined). In addition to expressing general
support for our proposals, a number of these commenters noted that
these requirements were already in place in their States or
organizations, and that they constituted an important part of their
system of claim reconciliation. Several sponsor commenters suggested
that semi-annual enrollment updates might be even more beneficial.
Twenty-five (25) commenters were completely opposed to these
proposals, including 10 State agency commenters from seven States and
15 sponsoring organization commenters. Generally, those who completely
opposed these proposals did so because they felt that annual updating
would entail too much cost or administrative burden for sponsoring
organizations, and/or that the information on the children's normal
days in care and meals received would be of little or no use. Many of
these commenters feared that providers would simply instruct parents to
state that their child might receive any meal service on any day so
that a reviewer would have no idea as to the child's normal hours of
care. Commenters also stated that parents' schedules were far too
variable to be meaningfully described in terms of a normal routine.
The other 16 commenters (13 State agency commenters from 11 States,
one national organization, and two sponsoring organizations) uniformly
supported annual updates to the enrollment form signed by a parent, and
believed that this process was important to Program integrity. However,
these commenters all believed that the specification of normal days and
meals received in care would not be useful, and usually cited as
reasons for this belief the same arguments (variability in parent
schedules or providers instructing parents to fill out the form in a
particular manner) as those who opposed all of the changes. Three of
the State agency commenters also stated that they believed the proposed
requirements to be potentially burdensome and unnecessary for the child
care center-based component of CACFP
Among the 63 comments received, seven (7) State agency commenters
from four States also mentioned that their States' licensing
authorities already required that certain information be captured on
enrollment forms. These commenters stated that they were unable or
unwilling to request that the licensing authority modify its form to
capture the additional information that we had proposed on normal days
in care and meals received.
What Was the Department's Intent With Respect to the Use of Enrollment
Information To Reconcile Claims?
Some commenters who opposed these proposed changes seemed to
believe that, because we mentioned the usefulness of this information
for sponsor reviewers when conducting the newly-required 5-day claim
reconciliation, we intended the reviewer to assess an overclaim
whenever a meal was claimed outside of a child's normal hours of care,
or to require that sponsoring organizations establish an automated
system to check meal claims against enrollments on a daily basis for
each child. In addition, some commenters seemed to believe that we were
proposing to require a parent to modify the form every time their
schedule changed.
In fact, we intended only to require that the enrollment form be
updated on an annual basis, or more frequently at the discretion of the
sponsor or, with Food and Nutrition Service Regional Office approval in
accordance with Sec. 226.25(b)), the State agency. We did not intend
or expect this information to be reconciled perfectly on each review,
nor did we intend to establish a Federal requirement that sponsoring
organizations make daily comparisons between enrollment information and
meals claimed. Rather, we envisioned that the expanded information on
the enrollment form would primarily serve as a means of indicating
potential concerns (what we have referred to in training as a ``red
flag'') for sponsor reviewers during on-site reviews. If the 5-day
reconciliation conducted as part of a facility review revealed that
meals were regularly being claimed for children who were not enrolled
and/or in attendance, sound Program management would require the
reviewer to take additional steps to verify the claim's accuracy (e.g.,
expanding the claim reconciliation beyond five days, scheduling the
provider for an additional unannounced visit, and/or initiating
household contacts). Similarly, the claiming of meals for children no
longer enrolled will be far easier to detect in a facility review if
both the sponsoring organization and the facility are required to have
annually updated enrollment information on file for each child.
What Proposals Will You Implement in This Interim Rule?
Based on the above clarification, we believe it is prudent to
require both annual updating of the enrollment form with parental
signature and the inclusion of additional information
[[Page 53515]]
(normal days in care and meals received) on the enrollment form. In
order to take into account the potential paperwork burden of processing
large numbers of additional enrollment forms (this burden could occur
for larger sponsoring organizations that currently have no system for
annual updates), and to provide State agencies with time, where
necessary, to coordinate with licensing authorities regarding changes
to the enrollment form, we will delay full implementation of this
provision until April 1, 2005. Between now and April 1, 2005,
sponsoring organizations can phase in the requirement so that
enrollment forms on file for all children as of April 1, 2005, are no
more than 12 months old.
Given the Amount of Time That Will be Required for Sponsors To Gather
This Information on an Annual Basis, Will the Department Consider This
Function to be Part of the Monitoring Function for Purposes of
Establishing a Monitor-Facility Ratio in Accordance With Sec.
226.16(b)(1)?
Yes. Because the primary purpose of our proposed changes is to
improve facility monitoring, and to offset some of the administrative
impact of updating of the enrollment form, we will permit sponsoring
organizations to include the time spent on the annual updating of
enrollment forms as part of the monitoring function, for the purpose of
establishing a ratio of full-time staff to sponsored facilities, as
required by Sec. 226.16(b)(1). This modifies guidance previously
issued on February 21, 2003, by permitting annual renewal enrollment
activities to be counted towards the sponsoring organization's
monitoring hours.
Will These Requirements be Extended to Independent Child Care Centers
and Adult Day Care Centers?
With regard to enrollment requirements for child care centers, both
sponsored and independent child care centers are also required to
implement these changes. As is the case in day care homes, annual
updating of the enrollment form for children enrolled in independent
centers should reduce the possibility of a center continuing to claim
reimbursement for children no longer in care. Since all participants in
child care centers must already have on file a current-year income
eligibility form (IEF), we recommend that State agencies or sponsoring
organizations consider amending the IEF to include this additional
enrollment information and to ensure its annual collection. As
previously mentioned, we do not believe that these new requirements
need to be extended to adult day care centers, though State agencies
may do so if they believe that it is appropriate.
Will These Requirements Apply to Outside-School-Hours Care Centers, At-
Risk Snack Programs, or Emergency Shelters?
No. When we published the proposal, we included these changes for
outside-school-hours care centers, but did not mention at-risk snack
programs since they were being addressed in a separate proposed
rulemaking (65 FR 60501, October 11, 2000). However, the comments we
received on the proposal have convinced us that the enrollment
requirement for outside-school-hours care centers is no longer
appropriate, because of the drop-in nature of many of these outside-
school-hours programs. A total of 49 commenters suggested that outside-
school-hours care centers and/or at-risk sites be exempted from these
enrollment requirements. These respondents included 31 sponsors or
other institutions, one State agency, nine State or National
organizations, two providers, and six commenters whose institutional
affiliation could not be determined.
Similarly, given the drop-in nature of many at-risk snack programs,
we have already issued guidance (January 14, 1999) that advises State
agencies that there is no enrollment requirement in the at-risk
component of CACFP. Please be aware that this will be addressed in a
final rulemaking that will implement the at-risk snack provisions that
were added to the NSLA by the Goodling Act. With regard to outside-
school-hours care centers, the existing regulatory definition of
outside-school-hours care center at Sec. 226.2 and the regulations at
Sec. 226.19 have always required enrollment documentation for each
child in outside-school-hours care. However, these requirements predate
the enactment of the Goodling Act, which stated that at-risk programs
and outside-school-hours care centers that are exempt from Federal,
State, or local licensing or approval requirements could participate in
CACFP based on compliance with State or local health or safety
standards. Implicitly, we believe that this statutory language
recognizes that both at-risk programs and outside-school-hours care
centers are similar in nature, insofar as they are more likely to serve
a drop-in population, as opposed to the type of regularly-attending,
enrolled population normally served in day care homes and child and
adult care centers. Therefore, in response to commenters' observations
regarding the need for relief from enrollment requirements in these
types of participating facilities, this interim rule removes references
to ``enrollment'' previously found in the definition of an outside-
school-hours care center at Sec. 226.2 and in the regulations
throughout Sec. 226.19(b). Furthermore, emergency shelters
participating in CACFP are also exempt from enrollment requirements
(i.e., there is no mention of enrollment requirements in the definition
of emergency shelter at Sec. 226.2).
What if an Outside-School-Hours Care Facility is Required by State
Licensing Rules To Maintain Enrollments on File?
The rule does not exempt any institution or facility from complying
with State licensing requirements. Furthermore, if State licensing
rules require an outside-school-hours care center to be licensed and to
regularly enroll the children in attendance, a State agency would
probably wish to include a review of enrollment records in its review
of the centers. This will enable a comparison of enrollment to
attendance and meal claims, as further discussed in part II(C), below.
However, in accordance with this rule, there is no Federal requirement
that children in outside-school-hours care centers be enrolled, as
there is for children in other centers or in family day care homes.
Accordingly, this rule amends Sec. 226.15(e)(2) and (e)(3) to
require that all enrollment forms be signed by a parent, be updated
annually, and include information on each child's normal days and hours
of care and the meals normally received in care. The rule also makes
the same change in those sections of the regulations dealing with child
care center and family day care home requirements at Sec. Sec.
226.17(b)(7) and 226.18(e). It also adds wording to Sec. 226.16(b)(1)
to clarify that the time spent in implementing these requirements may
be counted as monitoring-related time for the purpose of calculating a
sponsoring organization's full-time staff devoted to monitoring. In
addition, it removes references to ``enrollment'' previously found in
the definition of an outside-school-hours care center at Sec. 226.2
and in the regulations at Sec. Sec. 226.15(e)(2), 226.19(b)(1),
226.19(b)(3)(i), 226.19(b)(4), 226.19(b)(5), 226.19(b)(7)(i),
226.19(b)(8)(i), 226.19(b)(8)(iv), and 226.19(b)(8)(v).
[[Page 53516]]
C. Standard Review Elements Required for Sponsor Review of Facilities
What Did OIG Suggest Regarding Sponsoring Organization Monitoring
Requirements?
Current regulations at Sec. 226.16(d)(4) require sponsoring
organizations to review their facilities at least three times per year,
but do not specify the areas to be covered during the review. OIG
suggested requiring that each sponsoring organization review of a
family day care home cover certain basic elements of Program management
(such as recordkeeping, attendance at training, and menus) and also
include a reconciliation of enrollment and attendance records with
provider meal claim data. Although FNS Instruction 786-5, Rev. 1
(``Provider Claim Documentation and Reconciliation'', November 8,
1991), recommends that sponsoring organizations reconcile meal claims
submitted by family day care home providers with enrollment and
attendance records, it does not require that they be part of the normal
review process, nor does it state that they should be utilized in
reviews conducted by sponsors of centers.
What Did USDA Propose in Response to the Recommendation Concerning
Standard Review Elements?
We developed separate optional prototype forms for use by
sponsoring organizations in monitoring their family day care homes and
sponsored child care centers, but the proposed rule did not require the
use of these prototypes. However, we did propose to require that, if
State agencies or sponsoring organizations developed their own review
forms, the forms include, at a minimum, a review of compliance with
Program requirements pertaining to licensing or approval; health,
safety and sanitation; attendance at training; meal counts; meal
pattern requirements; menu and meal records; and the annual updating
and content of enrollment forms (if the facility is required to have
enrollment forms on file, as set forth in Sec. 226.15(e)(2) and
(e)(3)).
In addition, we proposed to further amend reorganized Sec.
226.16(d)(4)(i) to require that each review of a facility include an
assessment of whether the facility has corrected problems noted on the
previous review(s).
With regard to the OIG recommendation for reconciliation of meal
claims with attendance and enrollment records, we proposed to amend
reorganized Sec. 226.16(d)(4)(ii) to require that each review include
a thorough examination of the meal claims recorded by the facility for
at least five days of operation during the current or previous claiming
period. For each day examined, we proposed to require that reviewers
use enrollment and attendance records (except for outside-school-hour
and at-risk programs, where enrollment records are not required, as set
forth in Sec. 226.15(e)(2) and (e)(3)) to determine the number of
children in care during each meal service and to compare these numbers
to the numbers of breakfasts, lunches, suppers, and/or snacks claimed
for that day. Based on that comparison, the reviewers would determine
whether the claims were accurate. If there was a discrepancy between
the number of children enrolled or in attendance on the day of review
and prior claiming patterns, we proposed to require that the reviewer
attempt to reconcile the difference and determine whether the
establishment of an overclaim is necessary.
Finally, we also proposed two additional changes to the minimum
requirements for sponsoring organizations' reviews of facilities. The
first was that at least one of the sponsor's annual visits include the
observation of a meal service, and the second clarified that the
current minimum Federal requirement for family day care homes was that
day care home providers record meal counts on a daily basis. The former
proposal was discussed in the preamble but inadvertently left out of
the proposed regulatory language at Sec. 226.16(d)(4)(iii); the latter
involved a minor change to the regulatory language at Sec.
226.15(e)(4).
How Did Commenters' Respond to These Proposals?
State agency and sponsoring organization commenters were generally
favorable toward most of these changes. All 19 respondents (17 State
agencies and two sponsoring organizations or other instituions) who
commented on the concept of including minimum review elements for
sponsoring organizations in the regulations favored the idea. Ten (10)
respondents made positive comments on the proposal to require the
observation of a meal service at least once a year. In fact, as part of
the interim rule published on June 27, 2002, current Sec.
226.16(d)(4)(i)(B) now requires that one of the sponsor's required
unannounced reviews must include an observation of a meal service.
However, three aspects of the proposed sponsor review elements
received at least some negative comment: The inclusion of a health and
safety element in the standard review; the clarification of the
requirement for a daily meal count in family day care homes; and the
proposal to include a five-day reconciliation of meal claims in each
review. Each of these three areas is discussed separately below.
Review of health and safety.--A total of 397 respondents commented
on the proposed inclusion of a health and safety element in the review
requirements for sponsoring organizations. All but four of these
commenters stated that the health and safety element should not be
included in the standard sponsoring organization review requirements.
Those opposed argued that health and safety issues were addressed by
State or local licensing authorities; that sponsors already contacted
the appropriate authorities when a health or safety problem was noted;
and that any attempt by a sponsoring organization to remove a provider
from CACFP, or to take other action against a provider, based on a
health or safety violation, would exceed the organization's authority
and open them to possible legal liability.
Section 243(c) of ARPA amended section 17(d) of the NSLA by
authorizing the Department to establish standards that provide for the
suspension of day care home providers' CACFP participation when there
is an imminent threat to children's health or safety, or the public's
health or safety. Although sponsoring organizations are not licensors
and do not possess the authority to prevent a home from providing child
care, they do possess the authority to determine whether the home meets
the requirements for Program participation. Because of ARPA's wording,
the interim rule published on June 27, 2002, required sponsoring
organizations to suspend a day care home's participation when it is
determined that the home has been cited by the health or licensing
authority for serious violations that pose an imminent threat to
children or the public (see Sec. 226.16(l)(4)). Section 226.16(l)(4)
also required that, if the sponsoring organization determines that
there is an imminent threat to health or safety, it must immediately
notify the appropriate State or local licensing and health authorities
and take action that is consistent with these authorities'
recommendations and requirements. This meets ARPA's intent to require
sponsoring organizations to make common-sense determinations concerning
the health and safety of children in family day care, and the
provider's continued eligibility to participate in the Program, while
recognizing the authority of State or local licensing or approval
bodies to
[[Page 53517]]
determine whether the day care home will still be allowed to provide
child care in that jurisdiction. In addition, the interim rule
published on June 27, 2002, added to the regulations Sec.
226.16(l)(2), which is a list of serious deficiencies for facilities,
one of which is the existence of conduct or conditions that pose an
imminent threat to the health or safety of children in care or the
public.
Given ARPA's language concerning suspension of a day care home's
participation based on an imminent threat to health or safety, and
given the language at Sec. 226.16(l)(2) and (l)(4), it is
inappropriate to withdraw all reference to health and safety from this
rule. However, we are also cognizant of the complex issues that could
arise when a sponsoring organization takes action to remove a provider
from CACFP on the basis of health or safety issues. Therefore, this
rule removes the health and safety element from the list of required
review elements but adds a new paragraph, Sec. 226.16(d)(4)(viii),
that requires a sponsoring organization of family day care homes to
immediately contact the appropriate licensing authority when the
sponsor detects conduct or conditions that pose an imminent threat to
the health or safety of children in care or to the health or safety of
the public. This is consistent with the regulatory language already
added at Sec. 226.16(l)(2). Since many sponsoring organizations
commenting on the regulatory proposal stated that this was already
their current practice, the requirement should not mark a change from
current practice. Rather, the regulatory provision affirms sponsoring
organizations' authority to make an assessment and clarifies sponsoring
organizations' regulatory responsibility to consult with appropriate
licensing officials when they find conditions or conduct that pose an
imminent threat to health or safety.
Accordingly, this interim rule removes the language from Sec.
226.16(d)(4)(i) that identified health, safety, and sanitation as a
standard part of a sponsoring organization's facility review. Instead,
a new paragraph, Sec. 226.16(d)(4)(viii), has been added that
describes the actions a sponsoring organization must take when it
discovers conduct or conditions in a day care home that pose an
imminent threat to children's health or safety, or to public health or
safety.
Daily meal counts in family day care homes.--A total of 382
positive comments and 11 negative comments were received on this
provision of the proposed rule. The greatest division of opinion
occurred among State agency commenters, where 14 commenters agreed and
9 disagreed with the proposal. Several of these commenters (and the two
sponsoring organization commenters who opposed the provision)
recommended alternative language that would require day care homes to
take meal counts at or near the meal service, or prior to the next meal
service. Those opposed to the provision believed that meal counts
needed to be taken more frequently than daily in order to ensure
Program integrity and to address the type of block claiming described
elsewhere in the rule. In particular, State agency opponents of the
proposed language noted that group day care homes, homes providing
shift care, and homes located in States with licensing standards that
allow large numbers of children in family day care were examples that
warranted a requirement for homes to record meal counts more frequently
than daily.
We are impressed by these concerns, and are concerned that many of
the commenters favoring this clarification characterized it as a
prohibition on requiring homes to take meal counts more frequently than
daily. While we know that large family and group day care homes and
homes providing shift care are not the norm, they nevertheless exist,
and our proposal was not intended to prevent a State agency from
establishing additional State rules to govern these situations.
Therefore, although we do not intend to modify the language pertaining
to daily meal counts in family day care homes, we have added language
expressly recognizing State agencies' authority to establish State
requirements for more frequent meal counts in large family or group day
care homes with a total of more than 12 children enrolled for care, or
in day care homes that have had serious deficiency findings related to
meal counts and claims. We have chosen to use this threshold primarily
because we believe it reasonable to expect a provider to be able to
mentally keep track of, and accurately record at the end of the day, up
to that number of children in attendance on a single day. In addition,
since facilities with more than 12 children in care at one time are
classified as centers or group homes in most States, it seems logical
to apply the requirement for time-of-service meal counts to those homes
that serve more than 12 children in a single day. State agencies must
not establish such requirements for homes with 12 or fewer children
enrolled for care unless the home has had a serious deficiency relating
to its meal counting and claiming practices. We also wish to re-
emphasize, as we did in the preamble to the proposed rule, that claims
for reimbursement for meals served on the day prior to the review that
have not been recorded at the time of the review must not be paid.
Accordingly, this rule amends Sec. 226.15(e)(4) to require that
family day care homes take daily meal counts, but also provides State
agencies with authority to establish requirements for the recording of
time-of-service meal counts in family or group day care homes with a
total of more than 12 children enrolled for care, or in day care homes
of any size that have had serious deficiency findings related to meal
counts and claims. The rule also incorporates the proposed language
concerning time-of-service meal counts in centers at Sec. Sec.
226.11(c)(1), 226.15(e)(4), and 226.17(b)(8).
Five-day reconciliation of claims.--As previously mentioned, we
proposed to require that part of each facility review include a five-
day reconciliation of meal counts against enrollment and attendance.
This means that, as part of each facility review, a sponsoring
organization reviewer must compare five days of meal counts from the
current or previous claiming period against the facility's enrollment
records and any separate daily attendance records. A total of 16
commenters responded to this provision, with 14 in favor and 2
sponsoring organizations opposed. Those who opposed the proposal
believed that the addition of this requirement would be burdensome.
After the determination of a facility's compliance with meal
pattern requirements, we consider the five-day reconciliation to be
among the most important aspects of a facility review. Although it was
not previously required, FNS Instruction 786-5, Rev. 1, had long
recommended such practices. Based on abundant OIG and other review and
audit findings, the September 12, 2000, rulemaking proposed to elevate
the recommendation to a requirement.
Based on our conviction that on-site reconciliation during a review
is a vital aspect of assuring Program integrity, this interim rule
incorporates into the regulations the requirement for a five-day
reconciliation as a part of all facility reviews. However, we did add
regulatory language making clear that reconciliation of claims to
enrollment records was not required in those types of facilities not
required to keep enrollment records (i.e., at-risk snack programs,
outside-school-hours care centers, and emergency shelters). State
agencies should also note that, to effectively instruct sponsors on how
to
[[Page 53518]]
resolve discrepancies between enrollment/attendance and meal count/
claim data, it will be necessary to develop Statewide policies and
procedures that all sponsors are required to use. This will ensure
consistent treatment of discrepancies across sponsors. We strongly
recommend that State agencies address this issue by amending the
policies and procedures they have already established and disseminated
to sponsors regarding how to determine when a provider error rises to
the level of a serious deficiency.
Accordingly, Sec. 226.16(d)(4)(ii) is amended to include this
requirement.
D. Meal Claim Edit Checks
What Are Edit Checks?
Edit checks are methods of comparing the information that appears
on a claim for reimbursement with other information (e.g., enrollment,
approved meal types) about the claiming facility's normal operations in
order to help determine the claim's validity. An edit check by itself
may identify erroneous claims, but more often will identify claiming
patterns that serve as an indication of a possible error (i.e., the
claiming pattern will be a red flag) to those reviewing the claim.
These indicators should lead a reviewer to make a closer examination of
the facility's claims to determine if the claims are accurate. For
example, one common edit check would be to compare the total number of
meals claimed by a facility to the product of the number of children
enrolled at the facility, times the number of serving days in the
month, times that facility's number of approved meal services. If the
total number of meals exceeds the product of enrollment times serving
days times approved meal services, it could be an indication that the
facility has overclaimed meals in that month.
What Regulatory Requirements Now Exist To Help Ensure That the Claims
Being Submitted by Facilities Accurately Reflect Their Actual Meal
Service?
Section 226.10(c) of the current regulations requires all
institutions to report claims information in accordance with the State
agency's financial management system and in sufficient detail to
justify the amount of reimbursement claimed. However, these regulations
establish no specific edit check procedures that all sponsors must
utilize to determine the validity of facility claims, or that all State
agencies must utilize to determine the validity of institutions'
claims.
What Did the Department Propose To Require With Regard to Specific
Sponsoring Organization Edit Checks?
The Department proposed to amend Sec. 226.10(c) to specify minimum
requirements for the edit check process performed by sponsoring
organizations, including: (1) Verifying that facilities are approved to
claim the types of meals (breakfast, lunch, supper, snack) being
claimed; (2) ensuring that facilities do not claim meals in excess of
the maximum number they may serve in a claiming period (the common edit
check mentioned in the second preceding paragraph); and (3) a means of
detecting block claims (which the proposed rule defined as no daily
variation in the number of meals claimed for 10 or more days). The
proposal also stated that edit checks must be performed for every day
meals are claimed by a facility. In addition, we proposed to
incorporate similar language at Sec. Sec. 226.11(b) and 226.13(b)
governing consolidated claims submitted by sponsors of centers and
homes, respectively.
How Did Commenters Respond to These Proposed Changes?
We received a total of 427 comments on the proposal to add specific
edit checks to the CACFP regulations. In general, commenters agreed
with the need for edit checks. Thirty-four (34) commenters explicitly
stated their support for edit checks, while only one commenter opposed
edit checks. Twelve commenters (six State agency commenters and six
sponsoring organizations) explicitly endorsed the sponsor-level edit
checks that we had proposed. In addition, 318 commenters stated that
sponsoring organizations should be permitted to develop their own
systems of edit checks, meaning that they, too, agreed with the need
for some form of monthly claim system edit checks.
However, commenters overwhelmingly disagreed with the linkage in
the proposed rule between the block claiming edit check and the
requirement for a sponsoring organization to conduct household
contacts. A total of 333 commenters wanted the block claiming edit
check to be optional.
In addition, the vast majority of commenters stated that, if the
Department adopted the edit checks that were proposed, they should be
defined differently. A total of 345 commenters stated that the proposed
rule could lead to the impression that the purpose of the edit check
was a precise daily reconciliation between the claim and meals consumed
by individual children. To remedy this, the commenters suggested what
they referred to as a ``reasonable person standard'', and requested
that the Department add explicit language clarifying that sponsoring
organizations were to use such a reasonable person standard in
evaluating edit checks. Most commenters specifically suggested that we
add wording to clarify that the edit check was to be performed on the
facility's total monthly meal claim, not on a child-by-child basis and
not on a daily basis. A total of 151 commenters believed that, if the
block claiming edit check were retained, it should be modified
(generally by lengthening the period of time used to define a block
claim from 10 days to 60 days).
What Changes Will Be Made in This Interim Rule to the Edit Check
Requirements at Sec. Sec. 226.10(c), 226.11(b) and 226.13(b)?
There are several. As discussed in part II(A) of this preamble,
above, we have withdrawn the proposal to require sponsoring
organizations to conduct household contacts as a result of the proposed
block claiming edit check. In addition, we have made several changes to
the wording of the regulatory language to clarify our intent that edit
checks serve as a means for sponsoring organizations to assess a
monthly claim's overall validity, and are not intended as a means of
reconciling meals served to individual children, or to provide the more
precise reconciliation of enrollment, attendance, and meal counts/
claims that can be accomplished when conducting an on-site 5-day
reconciliation as part of a facility review. Finally, in recognition of
the time that some sponsors will need to bring their automated edit
check system into compliance with these requirements, we have delayed
implementation of these provisions until October 1, 2005.
Did You Retain the Block Claiming Edit Check?
Yes, although, as previously stated, it is no longer linked to a
household contact. Rather, we have redefined a block claim and linked
it with a different required follow-up action by the sponsoring
organization.
What Is Your Revised Definition of a ``Block Claim'' in This Interim
Rule, and What Consequence Now Occurs After a Block Claim Is Detected
Through the Edit Check Procedure?
Although, as noted in part II(A) above, most commenters believed
that children's attendance was often very regular and that 60 days of
identical
[[Page 53519]]
claiming should constitute a block claim, we noted that other
regulatory proposals (e.g., the proposal to have parents list regular
hours and meals received in care on the enrollment form) elicited the
response that children's attendance was far too variable to be
characterized in terms of a regular schedule. We still believe that
claiming the same number of meals served every day for an extended
period of time is an indicator of possible claiming improprieties, that
sponsoring organizations must establish edit checks to detect block
claims and that, once detected, they must be investigated further.
We have, therefore, added a definition to Sec. 226.2 that defines
a ``block claim'' as one in which the same number of meals is claimed
for one meal type (i.e., breakfast, lunch, snack, or supper) by a
facility for 15 consecutive days within the claiming period (generally,
one month). If a facility is providing care on weekdays only, that
means the block claim trigger would be reached with three weeks of
identical claims. If the facility is open on weekends as well, this
will mean that the block claim trigger will be reached after just over
two weeks of identical claims. Even in a small family day care home, or
a home that predominantly serves children of low-income working
parents, it seems quite likely that, typically, at least one child
would miss a meal service at some point during a 15-day period.
This interim rule also requires a different action by a sponsoring
organization when its edit check system detects a block claim. Instead
of requiring the sponsoring organization to make a household contact,
this rule requires the sponsor to conduct an unannounced review of the
facility within 60 days of receiving the block claim from the facility.
The 60-day period for conducting the follow-up unannounced review will
permit sponsors of geographically dispersed rural facilities to more
efficiently plan their reviews and, thus, to reduce travel costs.
Furthermore, as discussed below, State agencies will be allowed to
provide additional time to such sponsors on a case-by-case basis.
This interim rule also prohibits a sponsoring organization from
conducting fewer than three reviews of a facility in a year in which a
block claim is detected. This prohibition is discussed in greater
detail in part II(F) of this preamble, below, as part of implementing
the provision that permits sponsoring organizations to average the
number of reviews conducted over the course of a year.
Won't the Triggering of an Unannounced Review Still Require a Great
Expenditure of Effort by Sponsoring Organizations, Even in Instances in
Which the Provider's Block Claim Is Repeatedly Found To Be Legitimate?
We are cognizant of the fact that the submission of identical
claims by a very small family day care home provider could repeatedly
trigger an unannounced visit, even though the provider's claim is
totally legitimate. Therefore, this interim rule also states that, if
an unannounced review is triggered by a block claim, and the review
demonstrates that there is a logical explanation for the facility to
regularly submit a claim that is identical for every day of a claiming
period, the sponsor must document that explanation in its files, and
any subsequent block claims detected during the remainder of the
current fiscal year would not require the conduct of an additional
unannounced visit.
That is, a sponsoring organization whose edit check system detected
block claims by a provider or sponsored center would not be required to
conduct more than one unannounced review of the facility that was
triggered by a block claim, provided that the sponsor had documented a
compelling and logical reason for the regular submission of a block
claim by that facility earlier in the fiscal year, and that the
documented reason for the block claim was still relevant. This
provision will place an upper limit on the administrative burden on a
sponsoring organization in cases where a small day care home provider
is repeatedly, but legitimately, submitting a ``block claim'' as
defined at Sec. 226.2 of this rule.
This rule also allows State agencies to provide additional relief
to sponsoring organizations for which the 60-day unannounced review
requirement could create an inordinate administrative burden. We
appreciate that a variety of factors could make it difficult, if not
impossible, for a particular sponsor to conduct all of the required
unannounced visits within the 60-day timeframe. In such cases, State
agencies are authorized to provide a sponsor with up to 30 additional
days to complete the unannounced reviews triggered by the block claim
edit check.
Could This Rule Ever Lead to a Sponsor Having To Conduct More Than
Three Reviews of a Facility in a Year?
Yes, but only under very rare circumstances. For example, let us
say that a block claim was detected on an edit check early in the
fiscal/review year, and the subsequent unannounced review led to a
finding of serious deficiency (i.e., the facility had no persuasive
explanation for the block claim). However, if the facility successfully
corrected the serious deficiency and was not terminated, a second block
claim detected later in the fiscal/review year, after three reviews had
been conducted, would require the conduct of a followup, unannounced
review that could be the fourth total review of the facility in that
year.
However, we wish to emphasize that we expect such circumstances to
occur rarely. If the sponsor records a logical explanation for the
block claim after an unannounced visit early in the fiscal year (e.g.,
that a facility provides drop-in care and always fills to capacity on
each day that it is open) there would be no need to conduct another
(i.e., a fourth) review of that facility if a block claim was detected
again late in the fiscal/review year. If the sponsor had not found a
logical explanation for the block claim, and believes that the facility
has intentionally submitted a false claim, the sponsor must declare the
provider seriously deficient, which would make moot the number of
reviews to be conducted that year. Alternatively, if the sponsor is
unsure that the first unjustified block claim was intentional, but a
second unjustified block claim occurred during the year, it would lead
to a declaration of serious deficiency and, if corrective action was
not taken, termination, again rendering moot the total number of
reviews to be conducted in the year.
What Other Changes to the Proposed Regulatory Language Regarding Edit
Checks Are Included in This Interim Rule?
First, the language in the introductory text at Sec. 226.10(c) was
modified in several ways. The sentence in the proposed rule that
referred to performing edit checks for every day meals are claimed has
been removed. That sentence led some commenters to believe that we were
going to require sponsors to reconcile claims against enrollment and
attendance (see Sec. 226.10(c)(2)) on a daily, rather than a monthly,
basis. In fact, the sentence was only intended to convey that the edit
checks must take into account the number of days a facility is approved
to serve Program meals (e.g., some facilities are approved to serve
meals on weekends, while others operate on holidays). The sentence's
removal from the introductory text does not alter the specific
requirements set out in Sec. 226.10(c)(1) through (c)(3).
[[Page 53520]]
Second, one sentence that was in the introductory text of proposed
Sec. 226.10(c), which refers to reviewing discrepancies to determine
if the claim is accurate, more properly belonged in Sec. 226.10(c)(2),
because it referred specifically to the process of reconciling the
number of meals claimed with enrollment and serving days. The sentence
has therefore been moved to Sec. 226.10(c)(2) in this interim rule.
Third, we have edited the regulatory text at Sec. Sec. 226.11(b)
and 226.13(b), which refer to the edit check responsibilities of
sponsors of centers and sponsoring organizations of family day care
homes, respectively. Rather than detailing the edit check
responsibilities of such sponsors in each paragraph, this rule merely
cross-references Sec. 226.10(c)(1) through (c)(3), which set forth the
edit check requirements that apply to all types of sponsoring
organizations.
Fourth, 18 commenters specifically believed that our proposed
language referring to attendance patterns promoted confusion about the
purpose of the edit checks. Of course, in many cases, sponsor's would
not have immediate access to their facilities' attendance records,
which would limit the sponsor's ability to build information on
children's attendance into a monthly edit check system. To reiterate,
our intent is to require that sponsoring organizations have in place a
monthly edit check system capable of detecting if a facility submits a
claim that exceeds the maximum number of meals that should have been
served during the claiming period (i.e., claims a number of meals that
exceeds the product of enrolled children times approved meal services
times days of operation). We have, therefore, removed references to
attendance patterns from the regulatory language in this interim rule.
Finally, this interim rule includes specific language (see DATES
section of this preamble, above) delaying implementation of this
provision until October 1, 2005, that was mentioned in the preamble to
the proposed rule, but not adequately specified. As noted above, this
will provide sponsoring organizations with time to update their
computerized claims processing system to implement these required
changes to the edit check process.
Accordingly, this rule amends Sec. Sec. 226.10(c), 226.11(b), and
226.13(b) to require that, prior to submitting their consolidated
monthly claim to the State agency, sponsoring organizations conduct at
least three edit checks of facilities' meal claims for that period. It
also amends Sec. Sec. 226.10(c)(3) and 226.16(d)(4) to include the
changes to unannounced review requirements for facilities that have
submitted block claims in any year, as discussed above. The rule
further requires that these edit checks be implemented no later than
October 1, 2005.
What Did You Propose With Regard to State Agency Edit Checks of
Institutions' Claims?
Management evaluations discussed earlier in the preamble revealed
several instances in which State agencies did not employ edit checks
when processing institutions' monthly claims. For that reason, we
believe it is also necessary for State agencies to employ edit checks
when processing institutions' claims. We proposed at Sec. 226.7(k)
that, at a minimum, State-level edit checks ensure that payments are
made only for authorized meal types, and that the total number of meals
claimed does not exceed the number of facilities claiming meals, times
total enrollment, total approved meal types, and the number of approved
serving days during the claiming period.
How Did Commenters Respond to These Proposals?
We received a total of 15 comments, all of which were from State
agencies and their staffs. Of these, seven commenters approved of the
proposed changes; two approved of them if they were monthly rather than
daily requirements; two opposed them; and four opposed them while
stating that other State-level edit check requirements would be
acceptable.
At least some of the opposition to the proposal seemed to stem from
confusion over what edit checks we were proposing to require at the
State level, and how the checks were to be implemented. The two monthly
claims edit checks that we proposed at Sec. 226.7(k) were designed to
ensure that: payments to institutions were made only for approved meal
types; and that the number of meals reimbursed did not exceed the
product of enrollment times operating days times approved meal types.
We also proposed at Sec. 226.6(l)(3) [Sec. 226.6(m)(4) in this
interim rule] that, in the facility reviews required as part of a
larger review of a sponsoring organization, State agencies conduct a
reconciliation of the facilities' meal counts against enrollment and
attendance, just as sponsoring organizations are required to do. We
encourage State agencies to test and implement additional edit checks
that would increase their ability to detect inaccurate claims during
the claim review process.
We did not propose, as several commenters seemed to believe, that
State-level edit checks include a day-by-day comparison of attendance,
enrollment, and meal counts by type, nor did we propose that monthly
edit checks done at the State level take attendance patterns into
account (Note: as previously discussed, although we did propose that
sponsoring organizations' claims edit check systems include attendance
patterns as a point of comparison to meal counts, this interim rule has
eliminated any reference to attendance factors or attendance patterns).
The only time that we envision State agency reviewers examining daily
facility records is when they are actually reviewing a facility as part
of a larger review of a sponsoring organization, or when they are
examining meal count records in their onsite review of an independent
center.
Another commenter stated that their State agency would never have
any record of the meal types (e.g., breakfast, lunch, snack, supper)
that sponsored facilities had been approved to serve. This comment was
puzzling, insofar as the regulations at Sec. 226.16(b) require that
facilities' applications be approved by the State agency prior to
participation. As part of this review of facility applications, it was
our assumption that State agencies would note the meal types that
facilities are approved to serve, and build into their edit check
system an approximate indication of the maximum number of meals, by
type, that a sponsoring organization would be expected to submit in any
month. This indicator would be designed only to identify egregious
errors (e.g., 5 percent of the sponsor's homes are approved to serve
suppers, but 20 percent of the meals on the claim are suppers). Thus,
while we recognize that not all family day care homes claim Program
meals each month, and that there will therefore be a normal monthly
fluctuation in the number of meals being claimed by a sponsor, it
should still be possible for State agencies to establish certain red
flags, or indicators, in their claims processing systems that will
alert them to the possibility of erroneous claims and trigger further
efforts by the State agency to establish the claim's accuracy.
Accordingly, this interim rule incorporates at Sec. 226.7(k) the
monthly State agency edit checks that we had previously proposed.
However, this interim rule provides State agencies with time to modify
their current claims processing systems by requiring that these edit
checks be implemented no later than October 1, 2005.
[[Page 53521]]
E. Minimum State Agency Review Requirements
What Are the Current Regulatory Requirements Pertaining to State Agency
Reviews of Institutions?
The current regulations governing State agency reviews of
institutions are located at Sec. 226.6(m). This section addresses the
frequency of State agency reviews and requires that they assess the
institution's compliance with these regulations and with any applicable
FNS or Department instructions. However, current regulations do not
specify the subject areas to be examined in these reviews, nor do they
mandate any specific tests to determine the validity of meal claims.
What Were OIG's Findings and Recommendations Regarding State Agency
Monitoring Requirements?
OIG found that State agencies' reviews of family day care home
sponsoring organizations and family day care home providers ``generally
did not include sufficient tests to identify recordkeeping deficiencies
and inflated meal claims, and to assess the adequacy of sponsor
monitoring of [day care homes].'' We believe it is necessary to propose
changes to existing review requirements in order to ensure a
consistent, minimum National standard for State-level review of
institutions.
What Has USDA Done in Response to These Recommendations?
We proposed that every State agency review of an institution
include an assessment of certain aspects of the institution's program.
In addition, we proposed that each time a State agency reviews a
facility as part of its review of a sponsoring organization, the
facility review must include a comparison of the facility's available
enrollment and attendance records to the meal counts submitted by the
facility to its sponsor. We also developed new prototype forms for
State agency review of child care institutions. These forms include
sections covering required Program documents on file, facility
licensing or approval, meal counts, administrative costs, sponsor
training and monitoring of facilities, observation of meal service, and
other Program requirements. The September 2000 rule did not propose
requiring State agencies to utilize these prototype forms in conducting
reviews of institutions. However, we did propose to require that State
agencies cover all of these areas in their reviews, and that they make
any changes necessary to their State-developed review forms to ensure
that the new minimum review requirements are captured on their review
forms.
How Did Commenters Respond to These Proposals?
Overall, these proposals generated very little response. A total of
20 comments were received: 15 from State agencies; three from
sponsoring organizations or other institutions; one from a National
organization; and one from a person whose affiliation could not be
determined. Of these, 17 comments were uniformly positive regarding the
proposed changes, while three (3) recommended modifications and another
raised a question concerning the rule's applicability to reviews of
sponsors with affiliated centers.
One commenter stated that more mandatory review elements were
needed. This respondent felt that reviews of sponsoring organizations
should always include a review of the sponsor's disbursement of food
payments to facilities and a sponsor's reconciliation of claims
submitted by its sponsored facilities. These are important aspects of a
State agency's oversight of a sponsoring organization, but they are
already addressed in sections IX (B)(3) and IX(E)(2) of FNS Instruction
796-2, revision 3, ``Financial Management--Child and Adult Care Food
Program''. State agencies may certainly choose to include these aspects
of sponsor operations in their standard review protocols for
institutions if they wish.
Another commenter stated that we should add to former Sec.
226.6(l)(3) the percentage of facilities to be reviewed as part of a
State agency's review of a sponsoring organization. However, the
percentage of facilities to be reviewed was specified at former Sec.
226.6(l)(5) of the proposed rule, not Sec. 226.6(l)(3). Since
publication of the proposed rule, the interim rule published on June
27, 2002, reorganized and redesignated the State agency review
requirements as Sec. 226.6(m), and although the requirements
pertaining to a State agency's review of facilities--including the
percentage of facilities to be reviewed--are already discussed in Sec.
226.6(m)(6), this rule adds to Sec. 226.6(m)(4) a cross-reference to
Sec. 226.6(m)(6) in an effort to ensure that the requirement for a
specific percentage sample is underscored.
A third commenter expressed the opinion that it was not always
possible to include the observation of a meal service in a State agency
review. It was not clear whether the commenter believed that the review
elements listed at Sec. 226.6(l)(2) of the proposed rule (now at Sec.
226.6(m)(3) in this interim rule) applied to facility reviews conducted
by a State agency. Our intent was to specify the minimum requirements
for a State agency's review of an institution, which may occur as
infrequently as once every three years for an independent center. To
that end, we have clarified the language of the review elements to
specify that the observation of a meal service must be part of a review
of an independent center. Neither the proposed rule nor this rule
specify review elements for State agency reviews of sponsored
facilities, except that, as previously mentioned, they must include
verification of Program applications and a comparison of enrollment and
attendance to meal counts submitted by facilities over a five-day
period.
The final question about these provisions was how they applied to a
State agency's review of a Head Start sponsor or a sponsoring
organization's affiliated centers (i.e., sponsored centers that are
part of the same legal entity as the sponsoring organization that
enters into an agreement with the State agency). We believe that this
question may also have been based on the assumption that Sec.
226.6(m)(3) sets forth required elements for a State agency's review of
sponsored facilities when, in fact, only Sec. 226.6(m)(4) applies to
the reviews of institutions conducted by a State agency.
Accordingly, this interim rule amends Sec. 226.6(m)(3) to require
that each State agency review of an institution include a review of
specified review elements; amends Sec. 226.6(m)(4) to require that
each State agency review of a sponsoring organization include reviews
of a sample of sponsored facilities in order to compare enrollment
records, attendance records, and day-of-review meal counts observed
during sponsor reviews to meal counts submitted by the facility on its
monthly claim; and further amends Sec. 226.6(m)(4) to cross-reference
the verification requirements at Sec. Sec. 226.23(h) and 226.23(h)(1).
F. Review Cycle for Sponsored Facilities
What Are the Current Requirements for Sponsoring Organization Review of
Facilities?
The regulations at Sec. 226.16(d)(4) establish the requirements
for sponsoring organizations' reviews of their facilities, and
establish different minimum requirements for facility reviews by
sponsors of centers and sponsors of family day care homes.
The requirements for monitoring sponsored centers and family day
care homes are similar in most respects. Both
[[Page 53522]]
require that: the sponsored facility be reviewed three times per year;
no more than six months elapse between reviews; and new facilities be
reviewed during the early stages of their operation. However, there are
some differences in the current requirements for reviewing different
types of sponsored facilities:
New homes are currently required to be reviewed in their
first four weeks of operation, whereas new sponsored centers are to be
reviewed during their first six weeks of operation; and
With State agency approval, sponsoring organizations of
family day care homes are currently permitted to review each home an
average of three times per year, meaning that they may devote a greater
share of their review resources to the review of new or problem day
care home providers, provided that the average number of annual visits
per home is at least three. This allows family day care home sponsors
more flexibility than sponsors of centers.
What Changes did USDA Propose?
We proposed to make all types of facilities subject to the same
general review requirements (three reviews per year; allow no more than
six calendar months between reviews; and review each new facility
within its first four weeks of Program operation). We also proposed
giving all sponsoring organizations (not just sponsors of family day
care homes) greater flexibility in their conduct of reviews.
Specifically, we proposed that, without State agency approval,
sponsoring organizations could average their facility reviews. This
means that, if a sponsor administered CACFP in 300 facilities, it would
still be required to conduct at least 900 reviews. Each sponsored
facility would not necessarily have to be reviewed three times, but all
facilities would have to have at least two unannounced reviews each
year. Under our proposal, if the sponsoring organization's first two
reviews in a review cycle revealed no serious problems, the sponsoring
organization would have the option of not conducting a third review of
that facility and instead conducting an extra review at another
facility. This proposed change was intended to permit sponsoring
organizations the flexibility to target their reviews to newer
facilities or facilities with a history of operational problems, as
they see fit, while ensuring that there is no reduction in the
sponsor's overall monitoring efforts.
How Did Commenters Respond to These Proposals?
Commenters were somewhat divided in their response to this section
of the proposed rule. Altogether, 430 comments were received on this
portion of the proposal, with 393 expressing support for one or both of
the primary proposals (uniformity in review requirements for different
types of sponsored facilities and the provision of the flexibility for
sponsoring organizations to conduct an average of three reviews without
State agency permission). However, although sponsoring organizations
were more likely than State agencies to support the averaging of
reviews, a significant number of State agencies strongly supported this
proposal while a small but significant number of sponsoring
organizations opposed it.
Uniformity in review requirements for different types of
facilities.--No negative comments were received in response to the
proposal to make the review requirements identical for all types of
facilities. Accordingly, that aspect of the proposed rule is
incorporated in this interim rule at reorganized Sec.
226.16(d)(4)(iii), which also includes the requirements (added to the
regulation by the interim rule published on June 27, 2002) that two of
the three reviews conducted be unannounced, and that one unannounced
review include the observation of a meal service. In addition, readers
should note that, although the requirements for facility reviews are
still located at Sec. 226.16(d)(4), the paragraphs within that section
have been re-numbered to accommodate some of the changes being
incorporated in this interim rule.
Averaging of reviews.--Twenty-six (26) commenters opposed the
proposal to permit sponsoring organizations to conduct an average of
three reviews per facility per year. Some of these commenters
specifically objected to the elimination of the requirement that
sponsoring organizations obtain permission for this flexibility from
the State agency; other commenters (mostly sponsoring organizations)
objected because they believed that providers who received their second
review and knew they would not receive another review during the review
cycle were more likely to become lax in their adherence to critical
Program requirements.
Since publication of the proposed rule, the publication of the
first interim rule on June 27, 2002, included the requirement that two
reviews per facility per year be unannounced. We believe that this
change will go far toward responding to the comment about providers'
possible tendency to become lax after a second review. This interim
rule states that a provider or sponsored center must receive two
unannounced reviews during a review/fiscal year and be found to operate
a compliant program (i.e., the sponsor detected no serious
deficiencies, as defined in Sec. 226.16(l)(2)) before the averaging
provision can be used for that facility (i.e., before the facility is
eligible to be reviewed only twice in that year). In addition, the
changes made by this interim rule discussed in part II(D), above, mean
that this flexibility would be unavailable to a sponsor if a particular
facility submitted a block claim. Any facility that submits a block
claim for any reason is not eligible to receive fewer than three
reviews (at least two of which must be unannounced) in a given year.
This restriction will help to ensure that those providers most in need
of three or more reviews in a year will continue to receive three or
more reviews. Furthermore, in accordance with the definition of an
unannounced review at Sec. 226.2, we expect that sponsoring
organization monitors will not reveal anything about review schedules
or review protocols to providers, meaning that providers should not
know whether they are scheduled for more reviews during the remainder
of the fiscal year. Finally, sponsoring organizations that are not in
favor of this change are not required to implement it (i.e., they could
continue to conduct three reviews of each facility each year).
Accordingly, this rule retains the proposed language on the
averaging of reviews by sponsoring organizations, without State agency
permission, at reorganized Sec. 226.16(d)(4)(iv). Furthermore, in
accordance with the requirements for unannounced reviews promulgated in
the interim rule published on June 27, 2002, this interim rule requires
that any facility reviewed only twice in a year must have had two
unannounced reviews in that year without any findings of serious
deficiency.
Wording of provision for averaging of reviews.--We proposed that
the third review could be dropped for a particular facility when
sponsoring organizations had completed two of the three required
reviews without discovering serious problems. Twelve (12) commenters
objected to the proposed wording and stated that it was too
restrictive. Several commented, for example, that no provider would be
able to meet the meal pattern standard, since minor problems
[[Page 53523]]
of compliance were often discovered during reviews.
Since publication of the proposed rule, the interim rule published
on June 27, 2002, added language at Sec. 226.16(l)(2) of the
regulations that defines ``serious deficiencies'' for a provider or
other sponsored facility. It was necessary to add this provision to the
regulations in order to implement ARPA, and the list of serious
deficiencies for facilities includes problems that are substantially
the same as the serious problems listed in the proposed rule. However,
we would hope that labeling these as serious deficiencies that could
lead to a provider's termination for cause clarifies that we are not
referring to minor instances of non-compliance with the meal pattern or
other Program requirements. As we stressed in our training on the 2002
interim rule, we expect that, in determining what rises to the level of
a serious deficiency, sponsoring organizations will exercise sound
management judgment, just as we would expect State agencies to do in
assessing whether an institution is seriously deficient. To underscore
this point, the language describing sponsoring organizations'
flexibility in this area now refers specifically to serious
deficiencies as defined in Sec. 226.16(l)(2).
If a Facility Receives On-Site Training Rather Than a Third Review, Can
the Training Be Counted Towards the Sponsoring Organization's Required
Number of Facility Reviews To Be Conducted for the Year?
No. This flexibility in conducting reviews was added to the
regulations so that sponsoring organizations could better target
reviews to those facilities most in need of them. It was not designed
to allow training visits to substitute for on-site reviews.
Accordingly, this interim rule further amends Sec. 226.16(d)(4)
to:
Make uniform the general requirements for sponsors' review
of all of their child and adult care facilities, regardless of whether
the facility is a home or a sponsored center;
Permit sponsoring organizations of day care homes or
centers to waive a third review at a facility if the sponsor has
conducted two unannounced reviews of the facility during the review
cycle without discovering a serious deficiency, as described in Sec.
226.6(l)(2); and
Allow sponsoring organizations of day care homes or
centers to conduct an average of three reviews per facility per year
across their sponsorship (i.e., the third review at one facility could
be deferred so that additional reviews could be conducted at a new
facility or at a facility experiencing Program problems).
G. Disallowing Payment to Facilities
What Were OIG's Recommendations With Regard to Disallowing Payments to
Facilities?
The OIG audit of the family day care home component of CACFP (No.
27600-6-At) found that, in some instances where a provider had
submitted claims for reimbursement for meals served to absent or
nonexistent children, they still received Program payment for these
meals. The audit stated that, due to the wording of the current
regulations at Sec. 226.10(f), ``State agencies and sponsors may be
reluctant to disallow payments and/or request repayment of total meal
claims made during a period when it was determined that a [day care
home] * * * claimed meals [fraudulently] for absent and/or nonexistent
children.'' According to OIG, the failure of Sec. 226.10(f) to
specifically mention child and adult care facilities may have
discouraged some State agencies and sponsors from withholding or
recovering funds improperly paid to facilities, and OIG recommended the
addition of language to Sec. 226.10(f) to rectify this. [Please note
that the OIG report erroneously identified Sec. 226.10(f) as affecting
sponsors when, in fact, it applies only to State agencies' decision not
to pay all or a portion of a claim].
What Did the Department Propose?
We proposed to amend Sec. 226.10(f) to require State agencies to
deny payment of that portion of a claim identifiable with one or more
facilities when audits, investigations, or other reviews reveal that
the facility or facilities claimed meals for absent or nonexistent
children or in other unlawful acts with respect to Program operations.
How Did Commenters Respond to These Proposals?
Altogether, 18 commenters responded to this proposal (14 State
agencies, 3 sponsoring organizations, and one National organization),
and all were in favor of adding facilities to Sec. 226.10(f). Eight
commenters, however, added qualifications to their support or asked
that we add clarifying language to this interim rule, and some of these
additional comments or concerns indicated confusion regarding the
regulations' treatment of denied claims and withheld payments.
For example, four commenters stated that, in these cases, an
overclaim should be assessed. However, overclaims are assessed only
after a claim has been paid; this portion of the regulations deals
instead with the circumstances under which it is permissible to deny
payment of a claim, or a portion of a claim. Another commenter believed
that the proposal compromised a State agency or sponsoring
organization's ability to deny payment of a fraudulent claim, while
another believed that the regulation needed to state clearly that
termination for cause should be the result of the submission of false
claims. We hope that the addition to the regulations of Sec. 226.16(l)
by the interim rule published on June 27, 2002, made absolutely clear
that a sponsoring organization must declare seriously deficient any day
care home that submits a false claim, that this is the first step in
the process of terminating that provider's participation for cause, and
that a sponsor must only pay the valid portion of any claim submitted
by a facility. Our proposed revision of this section (Sec. 226.10(f))
merely clarifies a State agency's ability to disallow that portion of a
sponsor's claim that is identifiable with facilities where
investigations, audits, or reviews have revealed that the facility
claimed meals for absent or nonexistent children or otherwise engaged
in unlawful acts with respect to Program operations.
Two other comments merit special attention. These commenters stated
that the language of Sec. 226.10(f) is incomplete because it does not
state that a State agency may withhold an institution's claim while it
is being investigated for possible fraud, or that a sponsoring
organization may do the same when handling a possibly fraudulent claim
submitted by a facility. One of these commenters--apparently in
reference to ARPA's prohibition on suspension of payments except under
specified circumstances--stated that our proposed regulatory language
would not be effective if an institution or home that submitted a
fraudulent claim must continue to be paid. It is critical for us to
distinguish between suspension of payments, which in all but two
situations is prohibited under the NSLA, and a State agency or
sponsoring organization's obligation to refuse to pay an invalid claim.
Although section 243 of ARPA and section 307 of the Grain Standards
and Warehouse Improvement Act of 2000 (Pub. L. 106-472) prohibit the
suspension of an institution's Program participation, including Program
payments, except under certain specified conditions (the institution or
home's conduct or environment poses an imminent threat to participants'
health or safety or public health or
[[Page 53524]]
safety, or the institution knowingly submits a false or fraudulent
claim), these laws did not affect the State agency's right and
responsibility to deny payments to an institution when an invalid claim
is submitted, or a sponsoring organization's right and responsibility
to deny payments to a facility when an invalid claim is submitted.
Rather, ARPA simply stated this requirement in another way: That, to
the extent reasonably possible, a State agency must refuse to pay that
portion of an institution's claim that is invalid, rather than
suspending or withholding payment of the entire claim. Section
226.10(f) simply makes explicit that one source of information on which
a State agency's decision to deny payment of a claim could be based is
evidence found in audits, investigations, or reviews. The amendment to
Sec. 226.10(f) that we proposed at OIG's recommendation was intended
to remove any possible perception that the State agency lacked this
ability to deny payment of that portion of an institution's claim that
was identified with one or more facilities where an audit or review led
the State agency to conclude that the payment would be improper.
In other words, the NSLA requires that, in these cases, the State
agency do more than simply freeze payments to the sponsor. Rather, it
requires the continued payment of the valid portion of the claim, and
the non-payment of the invalid portion of the claim. In essence, the
NSLA requires that the State agency not over-react by stopping the
payment of the valid portion of a claim, but also requires that it not
under-react by failing to determine the reason for the erroneous claim
and whether initiation of the serious deficiency process is warranted.
Accordingly, this interim rule amends Sec. 226.10(f) as proposed.
H. Change To Audit Requirements
What Changes Did the Department Propose?
We proposed changes to the language of Sec. 226.8(a) of the
regulations, in large part to reflect changes to government-wide
auditing rules.
The regulations state that, unless exempt, State- and institution-
level audits must be carried out in accordance with Office of
Management and Budget (OMB) Circulars A-128 and A-110 and with 7 CFR
part 3015, the Department's Uniform Federal Assistance Regulations.
However, audit requirements for States, local governments, and
nonprofit organizations can now be found in OMB Circular A-133,
``Audits of States, Local Governments, and Non-Profit Organizations'',
and the Departmental regulations at 7 CFR part 3052. These requirements
apply to audits of State agencies and institutions for fiscal years
beginning on or after July 1, 1996. Therefore, we proposed updating
these regulatory references.
The two substantive changes to these requirements involved a change
in the government-wide threshold for the conduct of audits, which was
raised from $25,000 to $300,000, and the express prohibition on using
Federal funds for audits not required by 7 CFR part 3052. That means
that, if an institution expended less than $300,000 in total Federal
resources (which includes CACFP reimbursements, the value of USDA
commodities, and any other Federal funds received by the institution),
it is now exempt from the Federal requirement to have an organization-
wide audit or, in some cases, a program-specific audit. To address
these changes to the audit requirements, we proposed two changes to
Sec. Sec. 226.8(b) and 226.8(c). Specifically, we proposed to revise
the language at Sec. 226.8(b), which describes the circumstances under
which a State agency may make a portion of audit funding available to
institutions for the conduct of organization-wide audits, to reference
the new Departmental regulations governing such funds use. Also, we
proposed revising the language at Sec. 226.8(c), which describes the
circumstances under which the State agency may use audit funds for
program-specific audits, to clarify that the funds may also be used for
agreed-upon procedures engagements (limited-scope reviews conducted by
auditors), as described at 7 CFR 3052.230(b)(2).
What Rules Govern Audits for Proprietary Institutions?
The current regulations at Sec. 226.8(a) state that proprietary
(for-profit) institutions not subject to organization-wide audit
requirements must be audited by the State agency at least once every
two years. However, we issued guidance (dated January 18, 1991) that
exempted proprietary institutions from this requirement if they
received less than $25,000 per year in Federal Child Nutrition Program
funds, and later issued additional guidance (dated August 13, 1998)
informing State agencies that Departmental regulations at 7 CFR
3052.210(e) provide State agencies with the authority and
responsibility to establish audit policy for proprietary institutions.
The 1998 guidance further recommended that ``the threshold for these
[proprietary] audits previously established at $25,000 should be
raised, given the cost of the audits relative to the benefits''.
Institutions were (and still are) also required to comply with the
audit requirements of all other Federal departments or agencies from
which they receive funds or other resources.
How Did Commenters Respond to These Proposals?
We received only 10 comments on these changes, seven of which were
in favor. Two commenters objected to the government-wide change to the
audit threshold, and believed that smaller organizations were as much
in need of audits as larger ones. However, we cannot require the
conduct of audits when they are not required under government-wide
auditing rules. States may, of course, engage in such additional audits
as they deem necessary under their own State authorities.
Two other commenters who supported the rule, plus two who did not,
opposed the change in the amount of audit funding available to State
agencies. Since the reduction in audit funding was mandated by the
Goodling Act, it is dealt with in part IV of this preamble, below.
Accordingly, this interim rule adopts the changes to Sec. 226.8 as
proposed.
I. Income Eligibility of Family Day Care Home Providers Based on Food
Stamp Participation
What Did the Operation Kiddie Care Audit Reveal Regarding Family Day
Care Home Providers Claiming Income Eligibility on the Basis of Food
Stamp Participation?
The Operation Kiddie Care audit uncovered problems regarding the
CACFP participation of some family day care home providers whose income
eligibility is based on participation in the Food Stamp Program. OIG
sampled 24 providers in two States who claimed reimbursement for meals
served to their own children based on their household food stamp
participation. Of these providers, OIG determined that, in applying for
Food Stamp benefits, 14 had not revealed, or had understated, their
self-employment income from providing child care. In these cases, the
provider either should have received a lower food stamp allotment, or
would have been ineligible to receive food stamps at all. In some
cases, this would also have prevented them from claiming Program
reimbursement for meals served to their own children.
These findings were developed by OIG prior to the July 1, 1997,
implementation of the two-tiered
[[Page 53525]]
reimbursement system for family day care home providers. Since the
implementation of tiering, the fiscal consequences of underreporting
child care income are potentially far greater. Providers qualify to
receive Tier I rates for reimbursable meals served to all children in
their care if they live in an eligible, low-income area, or if their
household income is at or below 185 percent of the Federal income
poverty guidelines. Providers claiming income eligibility on the basis
of food stamp participation are only required to provide their name and
food stamp case number to their sponsor in order to receive the higher,
Tier I benefit for all children in their care. Furthermore, although
sponsoring organizations are required to verify the information
submitted by providers claiming Tier I eligibility based on income,
there are no verification requirements, per se, for a provider claiming
eligibility on the basis of food stamp participation. Therefore, if
providers are improperly receiving food stamps, and if their actual
household income exceeds 185 percent of the Federal income poverty
guidelines, they would not be eligible to receive tier I reimbursement
for CACFP meals served to all of the children in their care.
What Did FNS Propose To Address This Potential Problem?
We proposed to add, effective 6 months after issuance of an interim
or final rule, a requirement that sponsoring organizations of family
day care homes provide to the State agency a list of all of their
sponsored providers who qualify for tier I eligibility on the basis of
food stamp participation, and that they continue to supply this list to
the State agency on an annual basis. Within 30 days of receipt, the
State agency would be required to provide this information to the State
agency responsible for the administration of the Food Stamp Program. In
this way, food stamp eligibility workers would know that a specific
food stamp recipient was self-employed as a CACFP day care home
provider, and would be better able to discern the household's actual
income. Once this information was provided to the State Food Stamp
agency, they would be required, under Sec. 273.12(c), to use the
information in determining the household's food stamp eligibility.
How Did Commenters Respond to This Proposal?
Comments concerning this provision were largely negative. Of 455
comments received, 448 disapproved of our proposal, six favored it, and
one commenter raised a question (``What will the Food Stamp Program do
with this information?'') without stating an opinion about the
proposal. Opposition came from State agencies (33 opposed, three in
favor, one uncertain); sponsoring organizations and other institutions
(285 opposed, two in favor); State, regional, and National groups (20
opposed, one in favor); providers (60 opposed); and those whose
affiliation could not be determined (50 opposed). Of those opposed, 173
commenters cited one or more specific reasons for their opposition. The
most frequent objection (mentioned by 114 commenters) was that the
proposal might serve as a barrier or disincentive to participation in
CACFP or the Food Stamp Program by low-income providers most in need of
these programs' benefits. Many of these respondents stated that the
provision of this list to food stamp eligibility workers would identify
these providers as likely to be ineligible, expose their food stamp
cases to exceptional scrutiny, and discourage them from applying to
either program. In addition, 50 commenters believed that the proposal
would impose an unwarranted burden on State agencies and sponsoring
organizations, while 22 stated that this was a issue that should be
addressed by the Food Stamp Program and not the CACFP. Twenty-two
commenters believed that the proposed provision of information from
providers' income eligibility applications violated statutorily-
mandated confidentiality requirements, while 18 others cited other
reasons, including a reluctance to implement a Program change on the
basis of the small number of cases examined by OIG.
What Is the Department's Response to These Comments?
We regret the perception that the provision of this list may
discourage legitimate participation in either the Food Stamp Program or
CACFP. As a Department, we make every effort to encourage participation
by eligible individuals in both programs. At the same time, we are also
responsible for ensuring that those individuals receiving benefits meet
the statutory requirements for eligibility.
Clearly, as the Federal department charged with administering both
the CACFP and the Food Stamp Program, we have an obligation to ensure
that those claiming categorical eligibility for tier I benefits in
CACFP based on their food stamp participation have been accurately
determined to be food stamp eligible, and that those receiving food
stamps have accurately reported their household income. Self-employment
income of any kind poses difficulties for those charged with making
food stamp eligibility determinations and, since we are in a unique
position to improve the accuracy of these determinations by sharing
information across programs, we would be derelict in our responsibility
as Federal administrators of both programs were we to ignore this
issue.
To address this issue without referring a list of providers to the
Food Stamp Program would have required that we establish separate
verification procedures for providers claiming tier I eligibility based
on food stamp participation. However, these procedures would likely be
more burdensome to sponsoring organizations and/or State agencies, and
could conflict with the NSLA's provision of tier I categorical
eligibility for providers receiving food stamps. Sharing this list
(which is based on information already in sponsoring organizations'
possession, since they must know the basis for each home provider's
tier I determination) will involve a marginal amount of added effort
for sponsoring organizations and the CACFP State agency, with most of
the responsibility for follow-up falling on local food stamp offices.
In no way would an individual's presence on the list imply that the
household's eligibility for tier I status or food stamp benefits was
erroneous; however, if their food stamp case worker determined that
they had failed to report income from child care when they completed
their food stamp application, then the case worker would conduct a more
detailed examination of the case to determine whether the provider was,
in fact, eligible for food stamps. Thus, the only providers discouraged
from CACFP or Food Stamp Program participation will be those who were
not eligible to receive the level of benefits they had previously
received.
Five commenters (including two who supported the provision) stated
that the Food Stamp Program should also be required to share
information with CACFP when they have utilized the information made
available under this provision and re-determined a household's actual
income. We will work to ensure that this sharing of information takes
place whenever a provider qualifying for tier I benefits on the basis
of food stamp participation is determined to have household income
above 185 percent of poverty (i.e., when the provider's income is
determined to be ineligible for tier I benefits).
Finally, with regard to confidentiality issues, we must note that
the presumption of ``confidentiality'' does not in any way protect any
recipient of
[[Page 53526]]
Federal benefits from having their income eligibility statements
subjected to closer scrutiny by appropriate State or Federal officials
to review the accuracy of the program eligibility determination.
Accordingly, this rule amends Sec. 226.6(f)(1) by adding new
paragraph (f)(1)(x), requiring that State agencies annually collect
from each sponsoring organization of family day care homes a list of
day care home providers qualifying to receive tier I benefits on the
basis of their participation in the Food Stamp Program. This new
paragraph will also require State agencies to share this information
with the State agency administering the food stamp program within 30
days of receipt. This provision will be effective no later than April
1, 2005.
Part III. Training and Other Operational Requirements
As discussed in the Background section of this preamble, OIG's
national audit of family day care homes made recommendations for
changes to the current requirements for the training of day care
providers by sponsoring organizations. Specifically, OIG recommended
that the CACFP regulations be strengthened to require that all
participating child care providers attend a minimum number of hours in
Program and child care training each year, and that minimum content
requirements be established for such training. Current Sec. 226.18
requires that the agreement between a sponsoring organization and a
family day care home provider include a statement of the sponsor's
responsibility to train the day care home provider; however, this
provision has, in some cases, been interpreted to mean that training
must be offered to day care home providers, and not that providers are
actually required to attend the training. OIG also recommended that
sponsor monitors receive, at a minimum, training on the same content
areas provided to providers.
What Changes To Training Requirements did FNS Propose?
To address these issues, we proposed to reemphasize more strongly
that the intent of the regulatory language is to require that providers
attend or otherwise participate in the training that sponsors are
annually required to offer. In addition, we proposed extending the
requirement for mandatory attendance to all sponsored facilities, not
just family day care homes. We also stated in the preamble to the
proposed rule that sponsoring organizations could fulfill this
regulatory requirement in a variety of ways (e.g., group training,
training in the provider's home, and on-line training).
What Other Operational Changes Are Addressed in This Part of the
Preamble?
In addition, we proposed a number of other operational changes that
had been suggested by Program administrators in recent years. These
included:
Giving State agencies the authority to place restrictions
on meal service times;
Providing State agencies with greater flexibility on
payment procedures for new child care and outside-school-hours care
centers;
Stating expressly that State agencies are required to
issue and enforce the provisions of all Program guidance issued by FNS;
Stating expressly that sponsoring organizations of family
day care homes may neither use temporarily nor retain any portion of
providers' food reimbursement, except as specified in Sec. 226.13(c);
and
Eliminating obsolete language with regard to the
participation of adult day care centers.
Commenters' responses to these proposed changes are addressed in
the preamble discussion that follows.
A. Training Requirements for Sponsored Facilities and Sponsor Monitors
What Are the Current Regulatory Requirements for Sponsor Training of
Facility Staff?
The current regulations at Sec. 226.15(e)(13) require institutions
to maintain records that document:
The date(s) and location(s) of all training sessions
conducted;
The topics covered at the session(s); and
The names of attendees at each training session.
In addition, Sec. 226.16(d)(2) and (d)(3) require sponsors to
provide training to all sponsored child and adult care facilities in
Program duties and responsibilities prior to beginning Program
operations, and to provide additional training sessions not less
frequently than annually afterwards. These requirements are designed to
ensure that facility staff are familiar with Program requirements prior
to beginning their work with CACFP, and that the facility staff
participating in CACFP continue to receive additional training on a
regular basis.
What Were OIG's Findings and Recommendations With Regard to Facility
Training?
OIG found that compliance with these training requirements is not
uniformly monitored and enforced by State agencies and institutions.
Some CACFP administrators have interpreted current regulations to
require that sponsoring organizations offer training to day care home
providers, rather than requiring that the providers actually attend the
training. In fact, Sec. 226.18 is not entirely clear on this point;
currently, the agreement between providers and sponsors must simply
include a statement of the sponsor's responsibility to train the day
care home's staff. OIG recommended that all participating family day
care home providers receive a minimum number of hours in Program and
child care training each year, and that sponsors and State agencies
verify that providers receive training at least annually.
What Did the Department Propose?
We proposed at Sec. 226.16(d)(2) to clarify that key staff (as
defined by the sponsor) from all sponsored facilities are required to
attend training prior to participation in the CACFP. We also proposed
(at Sec. Sec. 226.16(d)(3), 226.18(b)(2), 226.19(b)(7) and
226.19a(b)(11)) that key staff (as defined by the State agency) from
all sponsored facilities must attend Program training at least annually
thereafter. We did not believe that it was appropriate for us to
establish a required annual curriculum for providers and key staff at
sponsored centers, or a minimum number of annual training hours.
However, we did propose that certain content on basic Program
requirements be covered in the training of all sponsored child care
facilities: serving meals which meet the CACFP meal patterns;
explaining the Program's reimbursement system; taking accurate meal
counts; submitting accurate meal claims, including an explanation of
how the sponsor will review the facility's claims; and complying with
recordkeeping requirements. We also proposed at Sec. 226.15(e)(15)
that sponsor monitors receive training in the same content areas as
providers.
Finally, we proposed that sponsor reviews of all child care
facilities include an assessment of compliance with training
requirements; and that State agency reviews of sponsors always include
a review of the sponsor's training (see proposed Sec. Sec.
226.16(d)(4)(i)(D) and 226.6(1)(2)(v), respectively).
How Did Commenters Respond to the Proposal for Annual Mandatory
Training and Related Proposals?
Overall, we received 49 comments dealing with one or more aspects
of our training-related proposals. All 30
[[Page 53527]]
comments (17 from State agencies and 13 from sponsoring organizations/
other institutions) that addressed the general proposal were in favor
of requiring training of key facility staff and sponsor monitors.
Accordingly, we have included those requirements in this interim rule
at Sec. Sec. 226.15(e)(14) (formerly proposed Sec. 226.15(e)(15)),
226.16(d)(2) and (d)(3), 226.17(b)(9), 226.18(b)(2), 226.19(b)(7), and
226.19a(b)(11). A number of these commenters also stated that they
supported the requirement for sponsoring organizations and State
agencies to monitor compliance with this requirement as part of their
reviews, and no commenters opposed the inclusion of this requirement.
Therefore, these requirements were included in this interim rule at
Sec. 226.6(m)(3)(viii) [Sec. 226.6(l)(2)(v) in the proposed rule] for
State agencies and at Sec. 226.16(d)(4)(i)(C) for sponsoring
organizations [Sec. 226.16(d)(4)(i)(D) in the proposed rule].
Commenters did express concern regarding the minimum content of the
training, the logistics of delivering the training, and to whom the
rules apply, as follows.
In-home and other forms of training.--Nineteen commenters (14
sponsors and 5 State agencies) were concerned that our use of the word
``attend'' appeared to prohibit training day care home providers in
their homes. Several of these commenters suggested viable training
delivery methods and settings that would meet the intent of mandatory
participation, including home study, in-home training, and self-paced
training. It was not our intent to limit training delivery methods or
settings. We believe that effective and valuable training can be
provided in a number of different settings, and in a number of
different ways. Therefore, we have modified the language describing
this regulatory requirement at Sec. Sec. 226.15(e)(14), 226.16(d)(2)
and (d)(3), 226.17(b)(9), 226.18(b)(2), 226.19(b)(7), and
226.19a(b)(11) to clarify that, while participation in training by day
care home providers and key staff at sponsored centers is required,
State agencies may allow institutions to develop and deliver training
in the manner most responsive to the needs of their staff and
facilities.
Training content.--Fourteen commenters (9 State agencies and 5
sponsors/other institutions) addressed our proposal to require that the
training provided prior to Program operations, and annually thereafter,
include information on basic Program information including meal
patterns, meal counts, claims submission, recordkeeping, and the
Program's reimbursement system. Four State agency commenters supported
the proposal as worded, while nine other commenters (4 State agencies
and 5 sponsors) questioned the benefit to be derived from presenting
the same basic training to the same staff each year. Several of these
comments stated that training appropriate for experienced staff and
providers would not necessarily be appropriate for new staff and
providers. One State agency commenter requested that we require a
specific number of training hours per year, and another questioned how
staff at affiliated centers could be meaningfully trained when they are
employed by the same legal entity as the sponsor.
We anticipate that training requirements established by State
agencies and the Program training provided to sponsor staff and
facilities would vary according to the needs of the audience, while
still meeting the minimum content requirements that we proposed. For
example, training delivered to a group of experienced staff in a small
child care center where all staff share duties would be different than
that delivered to experienced staff in a large facility where there is
division of duties, or that delivered to day care home providers. We
did not intend that experienced staff (whether providers, sponsored
center staff, or sponsor monitors) would have to receive the same
training year after year. To clarify this point, we have retained the
specific content requirements for the training of new facility staff
and sponsor monitors, but have modified the wording at Sec. Sec.
226.15(e)(14), 226.16(d)(2) and (d)(3), and 226.16(e)(3) by stating
that the content of the training must be appropriate to the experience
level and duties of the staff being trained.
With regard to specifying a minimum number of hours of annual
training, we still believe that, as stated in the preamble to the
proposed rule, State agencies are in the best position to develop these
types of rules as appropriate. Furthermore, with respect to training
the key staff at affiliated centers, we continue to believe that the
general requirement for training of all key staff--whether in family or
group day care homes, or in affiliated or unaffiliated sponsored
centers--is a critical aspect of improving Program performance.
Sponsors of affiliated centers must ensure that the staff responsible
for operating their sponsored facilities is fully aware of Program
requirements, since the parent (sponsoring) organization will bear the
responsibility for errors committed by staff at those facilities.
Consequences of failure to participate in mandatory training.--Nine
commenters (five State agencies and four sponsors/other institutions)
stated that we needed to clarify the consequences to facilities that
failed to participate in mandatory training, or to sponsoring
organizations that failed to ensure the training of their monitors. Six
of these commenters (two State agencies and four sponsors/other
institutions) stated that we should clarify that sponsors are permitted
to withhold all Program payments to facilities when key staff fail to
participate in training. In fact, however, the use of withholding
procedures (often referred to as ``stop payments'') was never
advisable, and is now specifically prohibited by section 17(f)(1) of
the NSLA, as explained in Program guidance issued on March 1, 2002
(``Use of ``stop payments'' in the * * * CACFP'').
The remaining three State agency commenters asked that we describe
the consequences for not attending mandatory training and that we
specifically address whether such facility staff or sponsors could be
declared ``seriously deficient''. In fact, the interim rule issued on
June 27, 2002, states at Sec. Sec. 226.6(c)(2)(ii)(F) and
226.6(c)(3)(ii)(O) that sponsors that fail to train their facilities in
accordance with Sec. 226.16(d) are seriously deficient. Since a
sponsor will be declared seriously deficient for failure to train
facilities, it is clear that a facility that failed to participate in
required training was also seriously deficient, in accordance with
Sec. 226.16(l)(2)(viii). However, to further clarify this, we have
added failure to attend training as a specific serious deficiency at
Sec. 226.16(l)(2)(viii), and redesignated former Sec.
226.16(l)(2)(viii) as Sec. 226.16(l)(2)(ix). In addition, we have
added to the sponsor-home agreement requirements at Sec. 226.18(b)(2)
specific wording that requires the home to participate in the training
offered by the sponsor. This will provide notice in the agreement that,
should the home fail to attend training, it would be out of compliance
with the sponsor-home agreement.
Key staff.--Two commenters (one State agency and one sponsor/other
institution) stated that our use of the term ``key staff'' was unclear.
The sponsor commenter believed that sponsoring organizations should
define key staff, while the State agency commenter believed that FNS
should make this determination.
[[Page 53528]]
In fact, the proposed rule was inconsistent on this point. Section
226.16(d)(2), referring to training of key facility staff prior to
Program operations, stated that the key staff would be defined by the
sponsoring organization; Sec. 226.16(d)(3), referring to annual
training of key facility staff, said that the State agency would define
key staff, as did Sec. Sec. 226.17(b)(9), 226.18(b)(2), 226.19(b)(7),
and 226.19a(b)(11). It was our intent that all day care home providers
be trained prior to participation and annually thereafter, and that the
key staff of sponsored child and adult care centers receive similar
training. State agencies, not sponsors, will be most objective in
determining which sponsored facility staff are required to attend
training, and we have changed the wording of Sec. 226.16(d)(2)
accordingly.
B. Times of Meal Service
What Are the Current Restrictions on the Time of Meal Service?
Except for outside-school-hours care centers, current regulations
do not place any limitations on the time of meal service. For outside-
school-hours care centers, the regulations at Sec. 226.19(b)(6)
require that three hours elapse between the beginning of one meal
service and the beginning of another, except that 4 hours must elapse
between the beginning of the lunch and supper meal services when no
snack is served between lunch and supper. In addition, this section of
the regulations prohibits outside-school-hours care centers from
beginning a supper service after 7 p.m. or ending the supper service
after 8 p.m. This section of the rule also limits the duration of meal
services in outside-school-hours care centers to a maximum of two hours
for lunch and supper and one hour for other meal services.
Who Has Asked for Changes to These Requirements?
Some State Program administrators have periodically requested that
we establish restrictions akin to those in outside-school-hours centers
to meals served in other types of facilities. In the past, we were not
prescriptive in other settings, having established the outside-school-
hours limits due to such facilities' potential overlap and duplication
of meal services already received by children in other types of child
nutrition settings (primarily, child care centers or schools). However,
we are concerned with recent audit and review findings that some child
care facilities have abused the Program in various ways because of the
lack of such meal service restrictions. In some cases, different meal
services were provided with little time between them, in an attempt to
maximize reimbursement; in other cases, suppers have regularly been
claimed at facilities where, when reviewers are present, no children
are in attendance. Some State agencies attempting to address this issue
have felt hampered by the absence of Federal regulatory authority for
them to establish such time limits for meal services.
What Did the Department Propose?
We proposed to give State agencies broad regulatory authority, at
proposed Sec. 226.20(k), to impose limits on the duration of meal
services and the time between meal services. In States where Program
reviews have uncovered patterns of abuse such as claiming of multiple
meals to children in care for a brief amount of time, we believed that
State agencies should have appropriate tools for eliminating such
mismanagement. In these circumstances, it is appropriate for State
agencies to have regulatory authority to support their attempts to
limit this type of abuse.
What Comments Did the Department Receive on This Proposal?
We received 474 comments on this proposed provision. Of these, 14
were in total agreement with the proposal as written (12 State agencies
and two sponsors/other institutions) while 14 sponsors or other
institutions opposed it, with eight of the sponsors stating that they
should be able to establish any time limits themselves, with State
agency approval. Of the remaining 446 comments, all expressed partial
support for the provision, but asked for modifications as follows:
Three commenters (two State agencies and one sponsor/other
institution) agreed with the provision, but asked for specific National
standards on the times and duration of meal services, and the times
between meal services.
Two State agency commenters agreed with the provision, but
believed that the language granting them specific authority to
establish time of meal service limits should reference cultural and
economic factors that should be taken into consideration.
One sponsor commenter agreed with the provision, but
believed that it should specifically refer to a prohibition on serving
the same child multiple meals in a short period of time.
A total of 191 commenters (sponsors, independent centers,
providers, State and National groups, and others) agreed with the
provision, but asked that the regulatory language require State
agencies using this authority to establish a waiver system that
referenced relevant factors that must be taken into account by the
State agency.
A total of 249 commenters (sponsors, independent centers,
providers, State and National groups, and others) agreed with the
provision, but asked that it include waiver language and that it
specifically exempt outside-school-hours care centers from time of
service requirements.
Clearly, these commenters have cited a number of reasons that a
single uniform approach to times of meal service may not work. That is
why, as stated in the preamble to the proposed rule, we are reluctant
to establish fixed National limits. The CACFP needs to be flexible
enough to accommodate children's varying needs, depending on their age,
cultural traditions, socioeconomic status, participation in the Head
Start Program, and even the distance that school-age children travel
between child care and school. We strongly encourage State agencies to
work with participating institutions to ensure that they are fully
aware of the variety of factors that need to be considered in
establishing time of meal service limitations in each State. However,
we believe that State agencies will approach meal service limits
mindful of the same concerns expressed by sponsors. It is up to each
State agency to determine the necessity for waivers or another system
to accommodate exceptions to a general rule. It should also be noted
that nothing in this interim rule mandates that State agencies
implement a specific schedule, or that they elect to establish one at
all.
With regard to outside-school-hours care centers, since this rule
will provide State agencies with the clear authority to establish any
time of meal service requirements they believe are necessary, there is
no longer a need for separate Federal restrictions on the time of meal
service in outside-school-hours care centers. Therefore, this rule will
eliminate the long-standing time restrictions on outside-school-hours
care center meal service at Sec. 226.19(b)(6). This change is
consistent with the statutory recognition, discussed above, that both
at-risk and outside-school-hours facilities often provide drop-in
services that differ substantially from more structured forms of child
care, and will leave to State agencies the determination as to what
type of time restrictions, if any, are appropriate for the various
types of facilities participating in CACFP.
[[Page 53529]]
Therefore, this interim rule incorporates into the regulation Sec.
226.20(k) the same language as proposed, which clarified State
agencies' authority to establish limits on the duration of meal service
periods and the time between meal services. It also eliminates the time
restrictions placed on meal services at outside-school-hours care
centers at Sec. 226.19(b)(6).
C. Reimbursement to Centers When Approved for Participation
What Are the Current Rules Pertaining to Reimbursement of New Centers?
Current Sec. 226.11(a) states that State agencies provide
reimbursement for meals served in centers (whether independent centers
or sponsored centers) only when the institution (the independent center
or the sponsor of centers) is operating under an agreement with the
State agency for meal types specified in the agreement. However, Sec.
226.11(a) also gives State agencies the option to reimburse centers for
meals served in the calendar month preceding the calendar month in
which the agreement is executed, provided that the center has records
to document participant eligibility, the number of meals served, and
that the meals met Program requirements.
Why Did the Department Propose a Change to This Provision?
State agencies have expressed concern that the current regulation's
wording limits their flexibility by:
Establishing an expectation that centers will always be
paid for meals served in the calendar month preceding execution of the
agreement; and
Not specifically citing the State agency's authority to
make payments only after the execution of an agreement with an
institution.
We agreed with the first concern and disagreed with the second.
Therefore, we proposed language that was intended to clarify that State
agencies are required to begin reimbursing centers for meals when a
Program agreement is signed, and when all Program requirements are
being met. This was not intended to eliminate a State agency's option
to reimburse a center for meals served in accordance with all Program
requirements in the month prior to executing an agreement with the
center. Rather, it was intended to clarify that State agencies could
choose either approach--either to reimburse all centers only for meals
served in accordance with all requirements after an agreement is
executed, or to reimburse all centers for meals served in accordance
with all requirements in the month prior to the month in which an
agreement is executed.
How Did Commenters Respond to This Proposal?
We received a total of 15 comments on this provision, all from
State agency staff in 10 different States. Although 11 commenters
supported the proposal, several of those who supported the proposal,
and all of those who disagreed with the proposal, mistakenly believed
that the option to reimburse centers for meals served in the month
prior to executing an agreement had been removed. In fact, our intent,
as stated above, was to clarify that the State agency develop a policy
based on either of these two approaches. To better clarify our intent,
this interim rule modifies the last sentence of Sec. 226.11(a).
This revised language should clarify that the State agency has two
options: (1) To develop a policy that allows centers to earn
reimbursement for meals served in the month preceding the month in
which the agreement is executed, and to reimburse centers for those
meals after an agreement has been executed; or (2) to develop a policy
that permits centers to earn reimbursement only for eligible meals
served on or after the date an agreement is executed. Please note that
we issued guidance on May 14, 2001, that extends similar options to the
reimbursement of day care homes for meals.
Accordingly, this interim rule modifies the language at Sec.
226.11(a) pertaining to the reimbursement of meals served in centers.
D. Regulations and Guidance
What Did the Department Propose?
Section 226.6(l) makes State agencies responsible for monitoring
institutions' compliance with Program regulations ``and with any
applicable instructions of FNS and the Department.'' These instructions
interpret existing rules by clarification or explanation and do not
impose new substantive requirements. Although this requirement and case
law have demonstrated that State agencies have the authority and the
responsibility to apply Federal guidance that interprets the
regulations and the law, we proposed regulatory language at Sec. Sec.
226.6(l) and 226.15(m) that underscored this fact. Comparable
regulatory language already exists in other programs, such as the
Summer Food Service Program (see 7 CFR 225.15(a)). The governing
statute for CACFP may be found at http://www.fns.usda.gov/cnd/Governance/nslp-legislation.htm
; Program regulations may be found at
http://www.fns.usda.gov/cnd/Care/Regs-Policy/new226.pdf and Program guidance may be found at http://www.fns.usda.gov/cnd/Care/Regs-Policy/policy.htm
or by contacting the State agency or the Food and Nutrition
Service.
How Did Commenters Respond to This Proposal?
A total of 21 commenters responded, with 17 in support of the
proposal and four in opposition. Of the 17 commenters in favor (15
State agencies and two sponsors/other institutions), three requested
that we add language clarifying that State agencies have authority to
impose additional requirements, provided that they are not in conflict
with the Federal regulations. This wording is unnecessary, however,
since the proposed changes referred to the State's authority to monitor
compliance with regulations, instructions, and handbooks issued by the
State agency which are consistent with the CACFP regulations. In
addition, existing Sec. 226.25(b) permits State agencies to add
requirements for participation, provided that they are consistent with
the Federal regulations and are approved by the FNS regional office.
The four commenters who disagreed (two State agencies and two
sponsors/other institutions) stated that any form of guidance not
promulgated through the rulemaking process was not enforceable. This is
precisely the misconception that our proposed regulatory language was
meant to address. In fact, the Administrative Procedures Act (5 U.S.C.
553) specifically exempts ``interpretative rules'' and ``general
statements of policy'' from publication in the Federal Register. State
agencies issuing handbooks and other guidance must ensure that they
comply with both Federal and State law governing such publications, and
that they do not conflict with the intent of any Federal Program or
other requirement. Furthermore, the State's procedural rules must not
diminish, contradict, or impose additional eligibility requirements for
institutions that would otherwise be eligible under Federal
requirements. For example, based on identified problems, a State agency
could impose additional monitoring requirements, but could not require
a new independent center to post a performance bond as a condition of
eligibility.
By stipulating that institutions must comply with instructions,
guidance, and handbooks issued in accordance with
[[Page 53530]]
regulations, we are emphasizing the authority of the Department and
State agencies to issue such rules and statements of policy through the
publication of handbooks and other forms of instruction. We have
changed the language of the proposed rules to clarify this point.
Accordingly, this interim rule implements the changes as proposed.
As a result of changes promulgated in the interim rule published on
June 27, 2002, these provisions appear at Sec. Sec. 226.6(m)(3)(iv)
[formerly the introductory paragraph of proposed Sec. 226.6(l)(2)] and
226.15(m).
E. Sponsor Disbursement of Food Payments to Providers
What Are the Rules Governing Sponsors' Disbursement of Meal Service
Payments to Family Day Care Homes?
The regulations at Sec. Sec. 226.13(c) and 226.18(b)(7) state that
sponsoring organizations of family day care homes must disburse the
full amount of meal service earnings to providers except that, with the
day care home provider's prior written consent, Sec. 226.18(b)(7)
stipulates that the sponsor may deduct the costs of providing meals or
foodstuffs to the provider. In recent years, we have been asked whether
the regulations would permit sponsors:
To temporarily retain some portion of the providers' meal
service payments; or
With or without prior written consent, to subtract the
costs of other goods or services (e.g., liability insurance premiums,
toys, or educational materials) provided to the family day care
provider; or
To withhold part or all of a provider's reimbursement if
the provider fails to attend training, or otherwise violates regulatory
provisions.
The intent of the current regulations is to prohibit any retention
of meal service payments received by the family day care home
sponsoring organization from the State agency, except in the single
specific instance described in the regulations (there is a written
agreement for the provision of meals or foodstuffs by the sponsor to
the provider) or in the more general circumstance of a provider having
submitted a claim that is erroneous or invalid. All of these
circumstances are also set forth in FNS Instruction 796-2, revision 3,
section IX(B)(3)(c).
We are well aware that sponsors often sell other goods or services
to family day care home providers, including providers they do not
sponsor. However, there is no reason for the government to facilitate
transactions through the retention of food service payments provided
under the CACFP. Such practices are not intended by section 17 of the
NSLA, and we intend there to be no exceptions save that mentioned in
the current rule. Therefore, we proposed to amend Sec. 226.18(b)(7) to
further clarify the limitations on sponsoring organizations' temporary
or permanent retention of meal service payments, except when it is
expressly permitted by the regulation.
What Comments Did You Receive on These Proposed Changes?
We received a total of 73 comments on this proposed change, 11 from
State agencies and 62 from sponsoring organizations or other
institutions. All commenters supported the change, though many of the
sponsor/institution comments requested that we add language permitting
sponsors to withhold claims without State agency permission, either due
to other violations of regulations, such as failure to attend required
training, or due to the day care home's submission of an invalid claim.
As discussed above (see part II(G) of this preamble, above), as a
result of ARPA, suspension of payments (i.e., cutting off all payments
to a provider) is not permitted except when the provider is found to
have created an imminent threat to public health or safety.
Furthermore, the NSLA does not permit the withholding of payments to a
provider based on the provider's failure to attend training. Instead,
the sponsor's recourse in such a case is to give the provider time to
come into compliance, then to declare the provider seriously deficient
if the provider remains in noncompliance.
However, we did not intend to limit the sponsor's ability to deny
payments to a provider who has submitted an invalid claim. We agree
with commenters that our proposed language stating that the denial of
invalid claims could only occur with the State agency's prior consent
presents an unnecessary impediment to sponsors' effective management of
the Program, and that language has been removed from this interim rule.
Accordingly, this interim rule incorporates the language proposed
at Sec. 226.18(b)(7), with the change discussed above.
F. Technical Changes
We received no negative comments regarding our proposal to
eliminate obsolete adult day care provisions at Sec. 226.25(g), nor
did we receive any recommendations for clarification. Therefore, we
will adopt our proposed regulatory language in this interim rule.
We also added a second technical change to this interim rule.
Section 226.6(o) was amended to reflect the changes to serious
deficiency and suspension procedures mandated by the Agricultural Risk
Protection Act of 2000.
Part IV. Non-Discretionary Changes Required by PRWORA, the Healthy
Meals Act, and the Goodling Act
In addition to the discretionary changes discussed in parts I-III
of this preamble, the proposed rule also included a number of non-
discretionary changes as well. Non-discretionary changes are those that
are specifically mandated by law, and the Department, therefore, must
include these provisions in the Program regulations. Although the
Department could have issued these non-discretionary changes in an
interim or a final rule, without first soliciting public comment, we
included these provisions in the proposal, both as a matter of
convenience and as a means of gathering comment on the manner in which
we were proposing to implement several of these provisions.
A. Issuance of Advances to Institutions Participating in CACFP
What Did You Propose With Respect to Advances?
As discussed in part I(A) of the preamble, above, we proposed to
implement a statutory change relating to advances that was promulgated
in section 708(f)(2) of PRWORA. Prior to the PRWORA's passage, State
agencies were required to issue advance payments for CACFP to
institutions that requested them. However, due to findings that
advances were being abused in some cases, the NSLA was amended by
PRWORA to make the issuance of advances optional. As we explained in
the preamble to the proposed rule, State agencies may elect to issue
advances to all institutions, no institutions, specific types of
institutions, or institutions with records of adequate Program
administration. Only when a State agency denies an advance to an
institution based on the institution's Program performance would it be
necessary to offer an appeal of the State agency's decision.
How Did Commenters Respond to the Proposal?
We received 12 comments on this provision, 11 of which were
favorable. The commenter who objected believed that State agencies
should not be provided with this latitude, and that
[[Page 53531]]
institutions with successful Program performance should be guaranteed
an advance if they apply for one. However, as previously noted, the
NSLA now makes advances optional at the State agency's discretion.
Of the commenters who agreed with the proposal (six State agencies,
four sponsors, and one State organization), seven requested that
additional language be included in the regulations. Five commenters
asked that the regulations state that State agencies could also elect
only to make available operating advances or administrative advances.
Another commenter suggested that the regulations state specifically
that the State agency may refuse to issue any advances whatsoever. We
have already issued guidance (dated January 27, 1997) that clarified
that State agencies had a variety of options in implementing this
provision. It would certainly be possible for a State agency to issue
operating advances only, administrative advances only, or no advances
at all. Any of these options would prevent a State agency from having
to offer an appeal to an institution requesting an advance that was not
available to similar institutions. We also have issued periodic
guidance on the matter of collecting advances.
What is at issue is whether it would be advantageous for any or all
of this information to be codified in the Program regulations. In
general, we prefer to address detailed procedural aspects of
implementation in interpretive guidance, rather than in the
regulations, as previously discussed. FNS also has training and
regional office dialogue with State agencies as methods for addressing
such inquiries and issues. For that reason, we are implementing this
regulatory change as proposed at Sec. 226.10(a).
B. Change to Method of Rounding Meal Rates in Centers
What Did the Department Propose?
Section 704(b)(1) of PRWORA amended section 11(a)(3)(B) of the NSLA
by changing the method to be used by the Department in making annual
adjustments to the national average payment rate for paid meals served
in the NSLP and SBP. This change also affected the method of rounding
used to calculate the annual adjustment to the rate for paid meals
served in child care centers and adult day care centers participating
in the CACFP because, under sections 17(c)(1) through (c)(3) and
17(o)(3) of the NSLA, these rates are linked to the rates and rounding
methods established in section 11(a)(3)(B). Later, section 103(b) of
the Goodling Act extended the same rounding procedure to the free and
reduced-price meal rates in NSLP, SBP, and the center-based component
of CACFP, effective July 1, 1999. Therefore, we proposed to modify the
language at Sec. 226.4(g)(2) of the regulations to reflect this
change. In addition, we proposed to change the word ``supplements'' to
``meals'' at Sec. 226.4(g)(2) of the regulations since this paragraph
is clearly intended to describe the method of adjusting and rounding
the rates for all meals (not just snacks/supplements) served in child
and adult day care centers.
How Did Commenters Respond?
We received a total of three comments on this provision, all from
State agencies. All approved of the change, but one commenter
questioned why we were not making a similar change to the method of
rounding meals served in day care homes. In fact, we have made this
change at Sec. 226.4(g)(1) as a statutorily-mandated part of the
implementation of the two-tiered system of reimbursement for family day
care homes (62 FR 889, January 7, 1997). Therefore, we will adopt in
the provision as proposed in this interim rule at Sec. 226.4(g)(2).
C. Elimination of Aid to Families With Dependent Children (AFDC)
Program
What Did You Propose, and How Did Commenters Respond?
As a result of PRWORA, the Federal AFDC Program was block granted
and its name was changed to Temporary Assistance for Needy Families
(TANF). This change requires us to change all references to ``AFDC''
and ``AFDC assistance units'' in the rule and to replace them with
``TANF'' and ``TANF recipient.''
We received three comments in favor of this mandatory change, and
this interim rule will make this change to our regulatory language as
proposed.
D. State Agency Outreach Requirements
What Did the Department Propose?
Section 708(a) of PRWORA amended the statutory purpose statement
for CACFP by amending section 17(a) of the NSLA. Previously, the law
stated that the purpose of CACFP was to assist States to initiate,
maintain, and expand nonprofit food service programs for children in
child care. Section 708(a) deleted the words ``and expand'' from this
sentence. In addition, section 708(h) of PRWORA revised section 17(k)
of the NSLA in its entirety. Previously, this section of the NSLA had
required State agencies to facilitate expansion and to annually notify
each nonparticipating institution of the Program's availability, the
requirements for participation, and the procedures for application. As
a result of this change, the NSLA now requires State agencies to
provide sufficient training, technical assistance, and monitoring of
the CACFP.
Did This Change Eliminate Outreach From the CACFP?
No. State agency outreach is still an allowable and desirable
Program activity. Although PRWORA removed two specific requirements for
State agency outreach, it also underscored the State agency's
responsibility to promote Program expansion in low-income and rural
areas. Prior to PRWORA, the NSLA had been amended to make additional
funds available to sponsoring organizations of day care homes for
expansion into rural or low-income areas. A later amendment permitted
day care home sponsors to use their administrative funds to defray the
licensing-related costs of non-participating low-income day care home
providers. The PRWORA underscored Congress' commitment to these
provisions by mandating that we publish interim regulations
implementing these changes and giving them the force of law, which was
done in 1998 (63 FR 9721, February 26, 1998). Thus, although the
specific requirement for State agencies to notify non-participating
institutions was removed, the law continues to promote program
expansion among rural and low-income family day care home providers.
Based on these congressional actions, we proposed to modify two
paragraphs within Sec. 226.6, which sets forth State agency
responsibilities. We proposed to amend Sec. 226.6(a) to require that
State agencies continue to commit sufficient resources to facilitate
Program expansion in low-income and rural areas, and proposed to amend
Sec. 226.6(g) to eliminate the language requiring that State agencies
take specific actions to facilitate expansion, while retaining the
broader requirement that State agencies take action to expand the
availability of Program benefits Statewide, and especially in low-
income and rural areas. We believe that these changes meet
congressional intent to eliminate the broad requirement that State
agencies expand the Program, and to substitute a requirement for
targeted expansion in low-income and rural areas.
How Did Commenters Respond to These Proposals?
We received seven comments on this provision--four from sponsors or
other
[[Page 53532]]
institutions, two from State agencies, and one from a State
organization. All commenters favored this change, but five of the seven
commenters believed that we should also include outreach to Tier II
homes as a State agency requirement. These commenters stated that the
recruitment and retention of Tier II homes had become much more
difficult after the introduction of the two-tiered reimbursement system
in family day care homes.
Although we are aware that many sponsors have expanded their
efforts to recruit and retain Tier II homes in recent years, we do not
believe that the wording of the NSLA would support our requiring State
agencies to engage in these efforts. Because of the NSLA's continued
emphasis on Program expansion in low-income and rural areas, a
requirement for State agency action to facilitate growth in Tier II
areas is not warranted. State agencies could elect to use State
administrative resources in support of other expansion efforts;
however, they are only required to make such efforts in low-income and
rural areas. Therefore, we will adopt in this interim rule the language
we proposed at Sec. Sec. 226.6(a) and 226.6(g).
E. Prohibition on Payment of Incentive Bonuses for Recruitment of
Family Day Care Homes
Why Did USDA Propose this Change?
Section 708(b) of PRWORA amended section 17(a)(6)(D) of the NSLA by
prohibiting any family day care home sponsoring organization which
employs more than one person from basing payment to employees on the
number of family day care homes recruited. These terms were not defined
by Congress, permitting us to broadly construe the terms ``employee''
and ``payment''. For example, sponsoring organizations often pay
individuals (including family day care home providers whom they sponsor
for CACFP) to perform specific program functions, such as training,
monitoring, or recruitment through a contractual arrangement. Although
that person is not a full-time employee of the family day care home
sponsoring organization, we nevertheless believe that they are covered
by this prohibition. We are also aware that sponsor employees can be
paid in a variety of ways (e.g., salaries, hourly wages, or on a piece-
work basis). It is our position that Congress intended to prohibit any
type of payments (including bonuses, contract incentives, free trips,
or any other perquisite or gratuity) under any compensation system if
the payment is based on recruitment activities performed by any full-
time or part-time employee, contractor, or family day care home
provider.
Can Sponsors Still Use Administrative Funds for Recruitment?
Yes. The recruitment of family day care home providers to
participate in CACFP is still an allowable expense, as long as (as
noted in the preamble to the interim rule published on June 27, 2002)
the provider is not currently participating in CACFP. In fact, as noted
in the previous part of this preamble, the NSLA continues to encourage
recruitment of non-participating providers in low-income and rural
areas. This means that family day care home sponsors are permitted to
pay employees or contractors to perform recruitment functions. However,
the person being paid cannot be reimbursed solely on the basis of the
number of homes recruited. Similarly, including the number of homes
recruited as an evaluation factor when measuring an employee or
contractor's performance is permissible, whereas providing a bonus or
award for recruiting a certain number of homes would not be
permissible. Therefore, we proposed to amend the regulations at Sec.
226.15 by adding a new paragraph, (g), which prohibits sponsoring
organizations of family day care homes from making payments to
employees or contractors solely on the basis of the number of family
day care homes recruited.
What Comments Did You Receive on This Proposal?
We received a total of eight comments (six from sponsors or other
institutions, two from State agencies) on this provision. Seven were
positive and one was opposed to the change; however, the commenter who
opposed the change was a sponsor who mistakenly believed that the
proposal would prevent her from paying employees based on the number of
homes they monitor. In fact, all systems of compensation are allowable
unless they are based on the number of homes recruited. Another
commenter asked whether this provision would prohibit a sponsor from
paying a provider a bonus for recruiting other providers. If the sole
condition for receiving the bonus was the number of day care homes that
began participating with the sponsor, the bonus would not be permitted.
Accordingly, this interim rule adopts the language at Sec.
226.15(g) as proposed, and redesignates Sec. 226.15(g) through (k) as
Sec. 226.15(h) through (l), respectively.
F. Pre-Approval Visits by State Agencies to Private Institutions
What Did You Propose to Change Regarding State Agency Pre-Approval
Visits to New Institutions?
Section 107(c) of the Goodling Act amended section 17(d) of the
NSLA (42 U.S.C. 1766(d)) to require State agencies to visit private
institutions (both non-profit and for-profit) applying for the first
time prior to their approval to participate in CACFP.
We believe that the change made to Sec. 226.6(m)(2) (formerly
Sec. 226.6(l)(2) in the interim rule published on June 27, 2002) which
requires State agencies to target for more frequent reviews those
institutions whose prior review included a finding of serious
deficiency, goes far towards fulfilling the second statutory
requirement. With regard to the requirement for pre-approval visits to
private institutions, we believe that Congress intended to exclude from
this requirement both public institutions and institutions which are
adult day care centers, and to focus additional State agency oversight
on child care institutions, and especially on sponsors. The Conference
Report language (Conf. Report 105-786, October 6, 1998) focuses
throughout on the Program management problems documented in OIG audits.
These audits have been confined to family child care homes and/or child
care centers because these organizations account for such a large share
of Program reimbursements.
We recognized that requiring State agencies to conduct a pre-
approval visit of each new independent center, especially in
geographically large and rural States, could result in delays in
approving such centers. Therefore, we addressed this issue in Program
guidance issued on July 14, 1999. That guidance set forth various ways
in which the pre-approval requirement might be met for independent
centers (including obtaining information gathered by the State
licensing agency in its previous visit(s) to the center), and described
certain circumstances under which we would be willing to entertain
State agency requests to waive the pre-approval requirement for one or
more independent centers. Thus, the guidance provides State agencies
with options for meeting the legal requirement with respect to
independent centers, but ensures that a pre-approval visit to
sponsoring organizations by the State agency will always occur.
[[Page 53533]]
What Comments Did You Receive on This Provision?
We received four comments on this provision, all from State
agencies. One commenter suggested that we consider modifying the rule
to require visits to institutions that are adult day care centers, and
another suggested the addition of both adult day care institutions and
publicly-administered child care institutions. A third commenter noted
the administrative burden on State agencies in implementing this
provision.
While there could be some benefit to extending the scope of this
requirement, the Goodling Act clearly stated that the requirement
applies to private child care institutions. State agencies may, of
course, choose to conduct pre-approval visits to adult day care or
public child care institutions, provided that approval or denial is not
delayed due to the State agency's inability to perform the pre-approval
visit in a timely fashion. Therefore, this interim rule implements our
regulatory language as proposed. Due to the further re-organization of
Sec. 226.6(b) in this interim rule, the provision will appear in the
introductory paragraph of Sec. 226.6(b)(1).
G. Provision of Information on the WIC Program
Why Did You Propose To Require the Distribution of Information on the
WIC Program?
Section 107(i) of the Goodling Act required us to provide State
agencies with information concerning the Special Supplemental Nutrition
Program for Women, Infants and Children (WIC) Program. The Goodling Act
also required State agencies to ensure that each participating facility
and independent child care center (other than outside-school-hours care
centers) receive materials that explain WIC's importance, its income
eligibility guidelines, and how to obtain benefits. In addition, State
agencies were required to provide these facilities and institutions
with periodic updates of this information and to ensure that the
parents of enrolled children receive this information.
On April 14, 1999, we provided the required information on WIC to
each State agency administering the CACFP. We proposed to amend Sec.
226.6(q) to require that State agencies distribute this information to
each child care institution participating in the Program, and Sec.
226.15(n) to require that the institution make this information
available to each sponsored facility (except sponsored outside-school-
hours care centers), and to ensure that institutions and/or facilities
make this information available to the households of participating
children.
How Did Commenters Respond to These Proposals?
We received four comments on these proposals, three from State
agencies and one from a sponsor. Two comments (one from a State agency
and the sponsor comment) were favorable, and two expressed opposition
to the provision. One of these opposed the administrative cost of
distributing the information, and felt that it should be borne by the
WIC Program; another stated that parents eligible for WIC were already
well aware of the Program. However, distribution of this information is
required by the NSLA; therefore, we will adopt our regulatory language
as proposed, at Sec. Sec. 226.6(q) and 226.15(n).
H. Audit Funding for State Agencies
What Change Did You Propose To Audit Funding for State Agencies?
Section 107(e) of the Goodling Act amended section 17(i) of the
NSLA (42 U.S.C. 1766(i)) by reducing the amount of audit funding made
available to State agencies. Prior to this change, State agencies could
receive up to two percent of Program expenditures during the preceding
fiscal year to conduct Program audits. This was changed to one and one-
half percent of Program expenditures in the previous fiscal year,
beginning in fiscal year 1999. In addition, in order to meet mandatory
ten-year budget targets, the Goodling Act also mandated a further
reduction (to one percent) in fiscal years 2005 through 2007, but it
was unclear whether the reduction for fiscal years 2005-2007 would
occur. Therefore, we proposed to amend Sec. 226.4(h) by removing the
words ``2 percent'' and substituting in their place the words ``1.5
percent'.
However, it now appears that the reduction to 1 percent funding
will occur in fiscal years 2005-2007. Therefore, this interim rule
incorporates language at Sec. 226.4(h) that refers to the 1 percent
funding level for fiscal years 2005-2007.
How Did Commenters Respond?
We received only one comment, from a State agency, on this
provision. That commenter observed that every effort must be made to
safeguard 1.5 percent audit funds during fiscal years 2005-2007.
However, because the reduction to 1 percent is likely to occur, as
noted above, the language of Sec. 226.4(h) has been amended to reflect
the lower levels of funding for fiscal years 2005-2007.
I. Elimination of Fourth Meal in Child Care Centers
Section 708(d) of PRWORA amended section 17(f)(2)(B) of the NSLA by
eliminating child care centers' ability to claim reimbursement for four
meals (either two meals and two snacks or three meals and one snack)
served to a single child in a day. Prior to this change, child care
centers and outside-school-hours care centers had been permitted to
claim reimbursement for a fourth meal served to a child who had been
maintained in care for eight or more hours on that day.
We neglected to include this change in our proposed rule. However,
since it is non-discretionary, we have included it in this interim rule
for implementation in keeping with the congressional mandate.
Accordingly, this rule amends Sec. Sec. 226.15(e)(5),
226.17(b)(3), and 226.19(b)(5) to eliminate outdated references to a
fourth meal.
Part V. Procedural Matters
Executive Order 12866
This interim rule has been determined to be significant and was
reviewed by the Office of Management and Budget under Executive Order
12866.
Regulatory Flexibility Act
This interim rule has been reviewed with regard to the requirements
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Eric M. Bost,
Under Secretary for Food, Nutrition, and Consumer Services, has
certified that this rule will not have a significant economic impact on
a substantial number of small entities.
The CACFP is administered by State agencies and by over 18,000
institutions (sponsoring organizations and independent centers) in over
210,000 facilities. The vast majority of institutions and facilities
participating in CACFP are small in size. Nevertheless, the changes
implemented in this interim rule will not have a significant economic
impact, except where improved monitoring procedures lead State agencies
to terminate institutions' agreements or sponsoring organizations
terminate their facilities' agreements. In short, there will be little
or no adverse impact on those entities administering the CACFP in
accordance with Program requirements, since most of these changes were
proposed in order to improve compliance with existing regulations and
in accordance with statutory changes to Program operations.
This rule will primarily affect the procedures used by State
agencies in reviewing institutions' applications to
[[Page 53534]]
participate in CACFP and in monitoring participating institutions'
performance. This rule will also affect participating institutions'
operation of the CACFP. These changes will not, in the aggregate, have
a significant economic impact on small entities.
Regulatory Impact Analysis
This rule implements a number of changes to existing Program
regulations, as proposed in our rulemaking of September 12, 2000 (65 FR
55101), and as modified in this rule as a result of public comment.
These changes will affect all entities involved in administering the
CACFP; those most affected will be State agencies, institutions, and
facilities.
Despite the conduct of numerous OIG audits and State and FNS
reviews, there is no statistically representative information available
on CACFP integrity. OIG reports have focused on purposely-selected
institutions and facilities, and reviews conducted by State agencies
and management evaluations conducted by FNS are not designed to capture
information for the purpose of developing Nationally-valid estimates of
fraud or mismanagement. While the OIG and other reports clearly
indicate that there are weaknesses in parts of the Program regulations,
and that there have been significant weaknesses in oversight by some
State agencies and sponsoring organizations, none of these reports
estimate the prevalence or magnitude of USDA fraud, abuse, or
mismanagement.
This lack of information makes it difficult for us to estimate the
amount of CACFP reimbursement lost due to fraud, abuse, or
mismanagement. For that reason, the fiscal impact of these provisions
cannot be estimated.
Executive Order 12372
This Program is listed in the Catalog of Federal Domestic
Assistance under No. 10.558 and is subject to the provisions of
Executive Order 12372, which requires intergovernmental consultation
with State and local officials (part 3015, Subpart V, of this title,
and final rule related notice published in 48 FR 29114, June 24, 1983,
and 49 FR 22676, May 31, 1984).
Executive Order 13132
Executive Order 13132 requires Federal agencies to consider the
impact of their regulatory actions on State and local governments.
Where such actions have ``federalism implications,'' agencies are
directed to provide a statement for inclusion in the preamble to the
regulation describing the agency's considerations in terms of the three
categories enumerated in Sec. 6(a)(B) of Executive Order 13132:
Prior Consultation With State Officials
Prior to drafting this interim rule, we received input from State
and local agencies at various times. Since the CACFP is a State
administered, Federally funded program, our regional offices regularly
have formal and informal discussions with State and local officials
regarding Program implementation and performance. This allows State and
local agencies to contribute input that helps to influence our
discretionary rulemaking proposals, the implementation of statutory
provisions, and even our own Departmental legislative proposals. In
addition, over the past nine years, our headquarters staff informally
consulted with State administering agencies, Program sponsors, and
CACFP advocates on ways to improve Program management and integrity in
the CACFP. Discussions with State agencies took place in the joint
Management Improvement Task Force meetings held between 1995 and 2000;
in four biennial National meetings of State and Federal Program
administrators (Seattle in 1996, New Orleans in 1998, Chicago in 2000,
and New York in 2002); at the December 1999 meeting of the State Child
Nutrition Program administrators in New Orleans, and in a variety of
other small- and large-group meetings. Discussions with Program
advocates and sponsors occurred in the Management Improvement Task
Force meetings held in 1999-2000; in annual National meetings of the
Sponsors Association, the CACFP Sponsors Forum, and the Western
Regional Office-California Sponsors Roundtable from 1995 to the
present; and in a variety of other small- and large-group meetings.
Nature of Concerns and Need To Issue This Rule
The issuance of a regulation is necessary to improve Program
management and, more specifically, to respond to management problems
identified by State and local Program administrators and by OIG. Many
of the individual provisions were discussed in the meetings with State
and local cooperators mentioned above. Although comments on the
proposed rule indicated that State agencies and local sponsoring
organizations had some concerns about some of our proposals, we have
made appropriate adjustments to those proposals and have addressed
these concerns in this interim rule.
Extent to Which We Meet Those Concerns
FNS has considered the impact of these changes on State and local
administering agencies, and has attempted to balance Program integrity
concerns with the need to maintain Program access for capable
institutions and family day care homes, and to ensure that improvements
in accountability do not place undue burdens on State and local Program
administrators. The preamble above contains a more detailed discussion
of our attempt to balance integrity and access concerns, while
implementing these provisions in a manner consistent with both the
letter and the intent of the NSLA. Major adjustments made by this
interim rule in response to public comment are discussed at length,
especially in part II of the preamble.
Public Law 104-4
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, requires Federal agencies to assess the effects of their
regulatory actions on State, local, and tribal governments and the
private sector. Under section 202 of the UMRA, the Food and Nutrition
Service must usually prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in new annual expenditures of $100 million
or more by State, local, or tribal governments or the private sector.
When such a statement is needed, section 205 of the UMRA requires the
Food and Nutrition Service to identify and consider regulatory
alternatives that would achieve the same result.
This rule contains no Federal mandates (as defined in title II of
the UMRA) that would lead to new annual expenditures exceeding $100
million for State, local, or tribal governments or the private sector.
Therefore, the rule is not subject to the requirements of sections 202
and 205 of the UMRA.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is intended to have preemptive effect with
respect to any State or local laws, regulations, or policies which
conflict with its provisions or which would otherwise impede its full
implementation. This rule is not intended to have retroactive effect
unless so specified in the ``Dates'' section of the preamble of the
final rule. All available administrative procedures must be exhausted
prior to any judicial challenge to the provisions of this rule
[[Page 53535]]
or the application of its provisions. This includes any administrative
procedures provided by State or local governments. In the CACFP, the
administrative procedures are set forth at: (1) Sections 226.6(k),
226.6(l), and 226.16(l) which establish administrative review
procedures for institutions, individuals, and day care homes; and (2)
Sec. 226.22 and 7 CFR part 3015, which address administrative review
procedures for disputes involving procurement by State agencies and
institutions.
Paperwork Reduction Act
In accordance with section 3507(j) of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507 et seq.), the information collection and
recordkeeping requirements included in this interim rule have been
submitted to the Office of Management and Budget (OMB) for approval.
Written comments on the information collection requirements in this
rule must be received on or before (insert 60 days after publication of
this interim rule) by the Office of Information and Regulatory Affairs,
Office of Management and Budget (OMB), 3208 New Executive Office
Building, Washington, DC 20503, Attention: Ms. Katherine Astrich, Desk
Officer for the Food and Nutrition Service. A copy of these comments
may also be sent to Mr. Robert Eadie at the address listed in the
ADDRESSES section of this preamble. Commenters are asked to separate
their remarks on information collection requirements from their
comments on the remainder of the interim rule.
OMB is required to make a decision concerning the collection of
information in this rule between 30 to 60 days after its publication in
the Federal Register. Therefore, a comment to OMB is most likely to be
considered if OMB receives it within 30 days of the publication of this
interim rule. This does not affect the 180-day deadline for the public
to comment to the Department on the substance of the interim rule.
Comments are invited on: (a) Whether the collection of information
is necessary for the Agency to perform its functions of the agency and
will have practical utility; (b) the accuracy of the Agency's estimate
of the burden of collecting the information, including whether its
methodology and assumptions are valid; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the information collection, including the use
of appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology. The title and description of the information collections
are shown below with an estimate of the annual reporting and
recordkeeping burdens. Included in the estimate is the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
Title: 7 CFR part 226, Child and Adult Care Food Program.
OMB Number: 0584-0055.
Expiration Date: January 31, 2007.
Type of request: Revision of existing collections.
Abstract: This rule revises: State agency criteria for approving
and renewing institution applications; State- and institution-level
monitoring requirements; Program training and other operating
requirements for child care institutions and facilities; and other
provisions which we are required to change as a result of the Healthy
Meals Act, the PRWORA, and the Goodling Act. The changes are intended
to improve Program operations and monitoring at the State and
institution levels and, where possible, to streamline and simplify
Program requirements for State agencies and institutions.
Estimated Total Annual Burden on Respondents:
Total Existing Burden Hours: 107,844.
Total Proposed Burden Hours: 111,398.
Total Difference: 3,654 hours.
Government Paperwork Elimination Act Compliance
FNS is committed to compliance with the Government Paperwork
Elimination Act, which requires Government agencies to provide the
public the option of submitting information or transacting business
electronically to the maximum extent possible.
List of Subjects in 7 CFR Part 226
Accounting, Aged, Day care, Food and Nutrition Service, Food
assistance programs, Grant programs, Grant programs--health, Indians,
Individuals with disabilities, Infants and children, Intergovernmental
relations, Loan programs, Reporting and recordkeeping requirements,
Surplus agricultural commodities.
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Accordingly, 7 CFR part 226 is amended as follows:
PART 226--CHILD AND ADULT CARE FOOD PROGRAM
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1. The authority citation for part 226 continues to read as follows:
Authority: Secs. 9, 11, 14, 16, and 17, National School Lunch
Act, as amended (42 U.S.C. 1758, 1759a, 1762a, 1765 and 1766).
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2. In part 226:
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a. Remove the words ``AFDC case number'' wherever they appear and add,
in their place, the words ``TANF case number''.
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b. Remove the words ``AFDC recipiency'' wherever they appear and add,
in their place, the words ``TANF recipiency''.
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c. Remove the words ``AFDC Program'' wherever they appear and add, in
their place, the words TANF Program''.
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3. In Sec. 226.2:
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a. The definition of AFDC assistance unit is removed.
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b. The word ``enrolled'' is removed from the definition of Outside-
school-hours care center.
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c. New definitions of Block claim and Household contact are added in
alphabetical order.
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d. The definition of ``Documentation'' is amended in paragraph (b) by
removing the words ``an AFDC assistance unit'' and adding in their
place the words ``who is a TANF recipient''.
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e. The definition of TANF recipient is added in alphabetical order.
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f. The definition of ``verification'' is amended by removing the words
``AFDC assistance unit'' and adding in their place the words ``is a
TANF recipient''.
The revision and additions specified above read as follows:
Sec. 226.2 Definitions.
* * * * *
Block claim means a claim for reimbursement submitted by a facility
on which the number of meals claimed for one or more meal type
(breakfast, lunch, snack, or supper) is identical for 15 consecutive
days within a claiming period.
* * * * *
Household contact means a contact made by a sponsoring organization
or a State agency to an adult member of a household with a child in a
family day care home or a child care center in order to verify the
attendance and enrollment of the child and the specific meal service(s)
which the child routinely receives while in care.
* * * * *
TANF recipient means an individual or household receiving
assistance (as defined in 45 CFR 260.31) under a State-administered
Temporary Assistance to Needy Families program.
* * * * *
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4. In Sec. 226.4:
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a. Paragraph (g)(2) is amended by removing the word ``supplements'' and
adding in its place the word ``meals'', and by removing the second
sentence and adding two new sentences in its place.
[[Page 53536]]
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b. Paragraph (h) is revised.
The addition and revision specified above read as follows:
Sec. 226.4 Payments to States and use of funds.
* * * * *
(g) * * *
(2) * * * Such adjustment must be rounded to the nearest lower
cent, based on changes measured over the most recent twelve-month
period for which data are available. The adjustment to the rates must
be computed using the unrounded rate in effect for the preceding year.
* * * * *
(h) Audit funds. For the expense of conducting audits and reviews
under Sec. 226.8, funds shall be made available to each State agency
in an amount equal to one and one-half percent of the Program
reimbursement provided to institutions within the State during the
second fiscal year preceding the fiscal year for which these funds are
to be made available. In fiscal years 2005-2007, for the expense of
conducting audits and reviews under Sec. 226.8, funds shall be made
available to each State agency in an amount equal to one percent of the
Program reimbursement provided to institutions within the State during
the second fiscal year preceding the fiscal year for which these funds
are to be made available. The amount of assistance provided to a State
under this paragraph in any fiscal year may not exceed the State's
expenditures under Sec. 226.8 during such fiscal year.
* * * * *
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5. In Sec. 226.6:
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a. Paragraphs (a) and (b) are revised.
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b. Paragraphs (c)(2)(ii)(B) and (c)(3)(ii)(C) are amended by removing
the reference ``paragraph (b)(18) of this section'' wherever it appears
and adding, in its place, the reference ``paragraphs (b)(1)(xvii) and
(b)(2)(vii) of this section''.
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c. Paragraphs (c)(7)(ii), (c)(7)(iii), (c)(7)(iv)(A), (c)(7)(iv)(B),
and (c)(7)(iv)(C) are amended by removing the reference ``paragraph
(b)(12) of this section'' wherever it appears and adding, in its place,
the reference ``paragraphs (b)(1)(xi) and (b)(2)(ii) of this section''.
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d. Paragraphs (f) and (g) are revised.
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e. Paragraph (h) is amended by revising the first sentence and by
adding a new sentence after the first sentence.
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f. Paragraphs (j) and (m) are revised.
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g. The second and third sentences of paragraph (o) are revised.
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h. A new paragraph (r) is added.
The additions and revisions specified above read as follows:
Sec. 226.6 State agency administrative responsibilities.
(a) State agency personnel. Each State agency must provide
sufficient consultative, technical, and managerial personnel to:
(1) Administer the Program;
(2) Provide sufficient training and technical assistance to
institutions;
(3) Monitor Program performance;
(4) Facilitate expansion of the Program in low-income and rural
areas; and
(5) Ensure effective operation of the Program by participating
institutions.
(b) Program applications and agreements. Each State agency must
establish application review procedures, in accordance with paragraphs
(b)(1) through (b)(3) of this section, to determine the eligibility of
new institutions, renewing institutions, and facilities for which
applications are submitted by sponsoring organizations. The State
agency must enter into written agreements with institutions in
accordance with paragraph (b)(4) of this section.
(1) Application procedures for new institutions. Each State agency
must establish application procedures to determine the eligibility of
new institutions under this part. At a minimum, such procedures must
require that institutions submit information to the State agency in
accordance with paragraph (f) of this section. For new private
nonprofit and proprietary child care institutions, such procedures must
also include a pre-approval visit by the State agency to confirm the
information in the institution's application and to further assess its
ability to manage the Program. The State agency must establish factors,
consistent with Sec. 226.16(b)(1), that it will consider in
determining whether a new sponsoring organization has sufficient staff
to perform required monitoring responsibilities at all of its sponsored
facilities. As part of the review of the sponsoring organization's
management plan, the State agency must determine the appropriate level
of staffing for each sponsoring organization, consistent with the
staffing range of monitors set forth at Sec. 226.16(b)(1) and the
factors it has established. The State agency must ensure that each new
sponsoring organization applying for participation after July 29, 2002
meets this requirement. In addition, the State agency's application
review procedures must ensure that the following information is
included in a new institution's application:
(i) Participant eligibility information. Centers must submit
current information on the number of enrolled participants who are
eligible for free, reduced-price and paid meals;
(ii) Enrollment information. Sponsoring organizations of day care
homes must submit current information on:
(A) The total number of children enrolled in all homes in the
sponsorship;
(B) An assurance that day care home providers' own children whose
meals are claimed for reimbursement in the Program are eligible for
free or reduced-price meals;
(C) The total number of tier I and tier II day care homes that it
sponsors;
(D) The total number of children enrolled in tier I day care homes;
(E) The total number of children enrolled in tier II day care
homes; and
(F) The total number of children in tier II day care homes that
have been identified as eligible for free or reduced-price meals;
(iii) Nondiscrimination statement. Institutions must submit their
nondiscrimination policy statement and a media release, unless the
State agency has issued a Statewide media release on behalf of all
institutions;
(iv) Management plan. Sponsoring organizations must submit a
complete management plan that includes:
(A) Detailed information on the organization's management and
administrative structure;
(B) A list or description of the staff assigned to Program
monitoring, in accordance with the requirements set forth at Sec.
226.16(b)(1);
(C) An administrative budget that includes projected CACFP
administrative earnings and expenses;
(D) The procedures to be used by the organization to administer the
Program in, and disburse payments to, the child care facilities under
its sponsorship; and
(E) For sponsoring organizations of family day care homes, a
description of the system for making tier I day care home
determinations, and a description of the system of notifying tier II
day care homes of their options for reimbursement;
(v) Budget. An institution must submit a budget that the State
agency must review in accordance with Sec. 226.7(g);
(vi) Documentation of licensing/approval. All centers and family
day care homes must document that they meet Program licensing/approval
requirements;
(vii) Documentation of tax-exempt status. All private nonprofit
institutions must document their tax-exempt status;
(viii) Documentation of proprietary center eligibility.
Institutions must
[[Page 53537]]
document that each proprietary center for which application is made
meets the definition of a title XIX center or a proprietary title XX
center, as applicable and as set forth at Sec. 226.2;
(ix) Preference for commodities/cash-in-lieu of commodities.
Institutions must state their preference to receive commodities or
cash-in-lieu of commodities;
(x) Providing benefits to unserved facilities or participants.
(A) Criteria. The State agency must develop criteria for
determining whether a new sponsoring organization's participation will
help ensure the delivery of benefits to otherwise unserved facilities
or participants, and must disseminate these criteria to new sponsoring
organizations when they request information about applying to the
Program; and
(B) Documentation. The new sponsoring organization must submit
documentation that its participation will help ensure the delivery of
benefits to otherwise unserved facilities or participants in accordance
with the State agency's criteria;
(xi) Presence on National disqualified list. If an institution or
one of its principals is on the National disqualified list and submits
an application, the State agency must deny the application. If a
sponsoring organization submits an application on behalf of a facility,
and either the facility or any of its principals is on the National
disqualified list, the State agency must deny the application;
(xii) Ineligibility for other publicly funded programs.
(A) General. A State agency is prohibited from approving an
institution's application if, during the past seven years, the
institution or any of its principals have been declared ineligible for
any other publicly funded program by reason of violating that program's
requirements. However, this prohibition does not apply if the
institution or the principal has been fully reinstated in, or
determined eligible for, that program, including the payment of any
debts owed;
(B) Certification. Institutions must submit:
(1) A statement listing the publicly funded programs in which the
institution and its principals have participated in the past seven
years; and
(2) A certification that, during the past seven years, neither the
institution nor any of its principals have been declared ineligible to
participate in any other publicly funded program by reason of violating
that program's requirements; or
(3) In lieu of the certification, documentation that the
institution or the principal previously declared ineligible was later
fully reinstated in, or determined eligible for, the program, including
the payment of any debts owed; and
(C) Follow-up. If the State agency has reason to believe that the
institution or its principals were determined ineligible to participate
in another publicly funded program by reason of violating that
program's requirements, the State agency must follow up with the entity
administering the publicly funded program to gather sufficient evidence
to determine whether the institution or its principals were, in fact,
determined ineligible;
(xiii) Information on criminal convictions.
(A) A State agency is prohibited from approving an institution's
application if the institution or any of its principals has been
convicted of any activity that occurred during the past seven years and
that indicated a lack of business integrity. A lack of business
integrity includes fraud, antitrust violations, embezzlement, theft,
forgery, bribery, falsification or destruction of records, making false
statements, receiving stolen property, making false claims, obstruction
of justice, or any other activity indicating a lack of business
integrity as defined by the State agency; and
(B) Institutions must submit a certification that neither the
institution nor any of its principals has been convicted of any
activity that occurred during the past seven years and that indicated a
lack of business integrity. A lack of business integrity includes
fraud, antitrust violations, embezzlement, theft, forgery, bribery,
falsification or destruction of records, making false statements,
receiving stolen property, making false claims, obstruction of justice,
or any other activity indicating a lack of business integrity as
defined by the State agency;
(xiv) Certification of truth of applications and submission of
names and addresses. Institutions must submit a certification that all
information on the application is true and correct, along with the
name, mailing address, and date of birth of the institution's executive
director and chairman of the board of directors;
(xv) Outside employment policy. Sponsoring organizations must
submit an outside employment policy. The policy must restrict other
employment by employees that interferes with an employee's performance
of Program-related duties and responsibilities, including outside
employment that constitutes a real or apparent conflict of interest.
Sponsoring organizations that are participating on July 29, 2002, must
submit an outside employment policy not later than September 27, 2002.
The policy will be effective unless disapproved by the State agency;
(xvi) Bond. Sponsoring organizations applying for initial
participation on or after June 20, 2000, must submit a bond, if such
bond is required by State law, regulation, or policy. If the State
agency requires a bond for sponsoring organizations pursuant to State
law, regulation, or policy, the State agency must submit a copy of that
requirement and a list of sponsoring organizations posting a bond to
the appropriate FNSRO on an annual basis; and
(xvii) Compliance with performance standards. Each new institution
must submit information sufficient to document that it is financially
viable, is administratively capable of operating the Program in
accordance with this part, and has internal controls in effect to
ensure accountability. To document this, any new institution must
demonstrate in its application that it is capable of operating in
conformance with the following performance standards. The State agency
must only approve the applications of those new institutions that meet
these performance standards, and must deny the applications of those
new institutions that do not meet the standards.
(A) Performance Standard 1--Financial viability and financial
management. The new institution must be financially viable. Program
funds must be expended and accounted for in accordance with the
requirements of this part, FNS Instruction 796-2 (``Financial
Management in the Child and Adult Care Food Program''), and parts 3015,
3016, and 3019 of this title. To demonstrate financial viability, the
new institution must document that it meets the following criteria:
(1) Description of need/recruitment. A new sponsoring organization
must demonstrate in its management plan that its participation will
help ensure the delivery of Program benefits to otherwise unserved
facilities or participants, in accordance with criteria developed by
the State agency pursuant to paragraph (b)(1)(x) of this section. A new
sponsoring organization must demonstrate that it will use appropriate
practices for recruiting facilities, consistent with paragraph (p) of
this section and any State agency requirements;
(2) Fiscal resources and financial history. A new institution must
demonstrate that it has adequate financial resources to operate the
[[Page 53538]]
CACFP on a daily basis, has adequate sources of funds to withstand
temporary interruptions in Program payments and/or fiscal claims
against the institution, and can document financial viability (for
example, through audits, financial statements, etc.); and
(3) Budgets. Costs in the institution's budget must be necessary,
reasonable, allowable, and appropriately documented;
(B) Performance Standard 2--Administrative capability. The new
institution must be administratively capable. Appropriate and effective
management practices must be in effect to ensure that the Program
operates in accordance with this part. To demonstrate administrative
capability, the new institution must document that it meets the
following criteria:
(1) Has an adequate number and type of qualified staff to ensure
the operation of the Program in accordance with this part;
(2) If a sponsoring organization, documents in its management plan
that it employs staff sufficient to meet the ratio of monitors to
facilities, taking into account the factors that the State agency will
consider in determining a sponsoring organization's staffing needs, as
set forth in Sec. 226.16(b)(1); and
(3) If a sponsoring organization, has Program policies and
procedures in writing that assign Program responsibilities and duties,
and ensure compliance with civil rights requirements; and
(C) Performance Standard 3--Program accountability. The new
institution must have internal controls and other management systems in
effect to ensure fiscal accountability and to ensure that the Program
will operate in accordance with the requirements of this part. To
demonstrate Program accountability, the new institution must document
that it meets the following criteria:
(1) Board of directors. Has adequate oversight of the Program by
its governing board of directors;
(2) Fiscal accountability. Has a financial system with management
controls specified in writing. For new sponsoring organizations, these
written operational policies must assure:
(i) Fiscal integrity and accountability for all funds and property
received, held, and disbursed;
(ii) The integrity and accountability of all expenses incurred;
(iii) That claims will be processed accurately, and in a timely
manner;
(iv) That funds and property are properly safeguarded and used, and
expenses incurred, for authorized Program purposes; and
(v) That a system of safeguards and controls is in place to prevent
and detect improper financial activities by employees;
(3) Recordkeeping. Maintains appropriate records to document
compliance with Program requirements, including budgets, accounting
records, approved budget amendments, and, if a sponsoring organization,
management plans and appropriate records on facility operations;
(4) Sponsoring organization operations. If a new sponsoring
organization, documents in its management plan that it will:
(i) Provide adequate and regular training of sponsoring
organization staff and sponsored facilities in accordance with Sec.
226.15(e)(12) and (e)(14) and Sec. 226.16(d)(2) and (d)(3);
(ii) Perform monitoring in accordance with Sec. 226.16(d)(4), to
ensure that sponsored facilities accountably and appropriately operate
the Program;
(iii) If a sponsor of family day care homes, accurately classify
day care homes as tier I or tier II in accordance with Sec. 226.15(f);
and
(iv) Have a system in place to ensure that administrative costs
funded from Program reimbursements do not exceed regulatory limits set
forth at Sec. Sec. 226.12(a) and 226.16(b)(1); and
(5) Meal service and other operational requirements. Independent
centers and facilities will follow practices that result in the
operation of the Program in accordance with the meal service,
recordkeeping, and other operational requirements of this part. These
practices must be documented in the independent center's application or
in the sponsoring organization's management plan and must demonstrate
that independent centers or sponsored facilities will:
(i) Provide meals that meet the meal patterns set forth in Sec.
226.20;
(ii) Comply with licensure or approval requirements set forth in
paragraph (d) of this section;
(iii) Have a food service that complies with applicable State and
local health and sanitation requirements;
(iv) Comply with civil rights requirements;
(v) Maintain complete and appropriate records on file; and
(vi) Claim reimbursement only for eligible meals.
(2) Application procedures for renewing institutions. Each State
agency must establish application procedures to determine the
eligibility of renewing institutions under this part. Renewing
institutions must not be required to submit a free and reduced-price
policy statement or a nondiscrimination statement unless they make
substantive changes to either statement. The State agency must require
each renewing institution participating in the Program to reapply for
participation at a time determined by the State agency, except that no
institution may be allowed to participate for less than 12 or more than
36 calendar months under an existing application, except when the State
agency determines that unusual circumstances warrant reapplication in
less than 12 months. The State agency must establish factors,
consistent with Sec. 226.16(b)(1), that it will consider in
determining whether a renewing sponsoring organization has sufficient
staff to perform required monitoring responsibilities at all of its
sponsored facilities. As part of the review of the renewing sponsoring
organization's management plan, the State agency must determine the
appropriate level of staffing for the sponsoring organization,
consistent with the staffing range of monitors set forth at Sec.
226.16(b)(1) and the factors it has established. The State agency must
ensure that each currently participating sponsoring organization meets
this requirement no later than July 29, 2003. At a minimum, the
application review procedures established by the State agency must
require that renewing institutions submit information to the State
agency in accordance with paragraph (f) of this section. In addition,
the State agency's application review procedures must ensure that the
following information is included in a renewing institution's
application:
(i) Management plan. For renewing sponsoring organizations, a
complete management plan that meets the requirements of paragraphs
(b)(1)(iv), (b)(1)(v), (f)(1)(vi), and (f)(3)(i) of this section and
Sec. 226.7(g);
(ii) Presence on National disqualified list. A renewing institution
is prohibited from submitting a renewal application if it or any of its
principals is currently on the National disqualified list. If such an
institution submits an application, the State agency must deny the
application. A renewing sponsoring organization is also prohibited from
submitting a renewal application on behalf of a facility if the
facility or any of its principals is on the National disqualified list.
If a renewing sponsoring organization submits an application on behalf
of such a facility, the State agency must deny the facility's
application;
(iii) Ineligibility for other publicly funded programs.
(A) General. A State agency is prohibited from approving a renewing
institution's application if, during the
[[Page 53539]]
past seven years, the institution or any of its principals have been
declared ineligible for any other publicly funded program by reason of
violating that program's requirements. However, this prohibition does
not apply if the institution or the principal has been fully reinstated
in, or determined eligible for, that program, including the payment of
any debts owed;
(B) Certification. Renewing institutions must submit:
(1) A statement listing the publicly funded programs in which the
institution and its principals have participated in the past seven
years; and
(2) A certification that, during the past seven years, neither the
institution nor any of its principals have been declared ineligible to
participate in any other publicly funded program by reason of violating
that program's requirements; or
(3) In lieu of the certification, documentation that the
institution or the principal previously declared ineligible was later
fully reinstated in, or determined eligible for, the program, including
the payment of any debts owed; and
(C) Follow-up. If the State agency has reason to believe that the
renewing institution or any of its principals were determined
ineligible to participate in another publicly funded program by reason
of violating that program's requirements, the State agency must follow
up with the entity administering the publicly funded program to gather
sufficient evidence to determine whether the institution or its
principals were, in fact, determined ineligible;
(iv) Information on criminal convictions.
(A) A State agency is prohibited from approving a renewing
institution's application if the institution or any of its principals
have been convicted of any activity that occurred during the past seven
years and that indicated a lack of business integrity. A lack of
business integrity includes fraud, antitrust violations, embezzlement,
theft, forgery, bribery, falsification or destruction of records,
making false statements, receiving stolen property, making false
claims, obstruction of justice, or any other activity indicating a lack
of business integrity as defined by the State agency; and
(B) Renewing institutions must submit a certification that neither
the institution nor any of its principals have been convicted of any
activity that occurred during the past seven years and that indicated a
lack of business integrity. A lack of business integrity includes
fraud, antitrust violations, embezzlement, theft, forgery, bribery,
falsification or destruction of records, making false statements,
receiving stolen property, making false claims, obstruction of justice,
or any other activity indicating a lack of business integrity as
defined by the State agency;
(v) Certification of truth of applications and submission of names
and addresses. Renewing institutions must submit a certification that
all information on the application is true and correct, along with the
name, mailing address, and date of birth of the institution's executive
director and chairman of the board of directors;
(vi) Outside employment policy. Renewing sponsoring organizations
must submit an outside employment policy. The policy must restrict
other employment by employees that interferes with an employee's
performance of Program-related duties and responsibilities, including
outside employment that constitutes a real or apparent conflict of
interest. Sponsoring organizations that are participating on July 29,
2002, must submit an outside employment policy not later than September
27, 2002. The policy will be effective unless disapproved by the State
agency;
(vii) Compliance with performance standards. Each renewing
institution must submit information sufficient to document that it is
financially viable, is administratively capable of operating the
Program in accordance with this part, and has internal controls in
effect to ensure accountability. To document this, any renewing
institution must demonstrate in its application that it is capable of
operating in conformance with the following performance standards. The
State agency must only approve the applications of those renewing
institutions that meet these performance standards, and must deny the
applications of those that do not meet the standards.
(A) Performance Standard 1--Financial viability and financial
management. The renewing institution must be financially viable.
Program funds must be expended and accounted for in accordance with the
requirements of this part, FNS Instruction 796-2 (``Financial
Management in the Child and Adult Care Food Program''), and parts 3015,
3016 and 3019 of this title. To demonstrate financial viability, the
renewing institution must document that it meets the following
criteria:
(1) Description of need/recruitment. A renewing sponsoring
organization must demonstrate that it will use appropriate practices
for recruiting facilities, consistent with paragraph (p) of this
section and any State agency requirements;
(2) Fiscal resources and financial history. A renewing institution
must demonstrate that it has adequate financial resources to operate
the CACFP on a daily basis, has adequate sources of funds to withstand
temporary interruptions in Program payments and/or fiscal claims
against the institution, and can document financial viability (for
example, through audits, financial statements, etc.); and
(3) Budgets. Costs in the renewing institution's budget must be
necessary, reasonable, allowable, and appropriately documented;
(B) Performance Standard 2--Administrative capability. The renewing
institution must be administratively capable. Appropriate and effective
management practices must be in effect to ensure that the Program
operates in accordance with this part. To demonstrate administrative
capability, the renewing institution must document that it meets the
following criteria:
(1) Has an adequate number and type of qualified staff to ensure
the operation of the Program in accordance with this part;
(2) If a sponsoring organization, documents in its management plan
that it employs staff sufficient to meet the ratio of monitors to
facilities, taking into account the factors that the State agency will
consider in determining a sponsoring organization's staffing needs, as
set forth in Sec. 226.16(b)(1); and
(3) If a sponsoring organization, has Program policies and
procedures in writing that assign Program responsibilities and duties,
and ensure compliance with civil rights requirements; and
(C) Performance Standard 3--Program accountability. The renewing
institution must have internal controls and other management systems in
effect to ensure fiscal accountability and to ensure that the Program
operates in accordance with the requirements of this part. To
demonstrate Program accountability, the renewing institution must
document that it meets the following criteria:
(1) Board of directors. Has adequate oversight of the Program by
its governing board of directors;
(2) Fiscal accountability. Has a financial system with management
controls specified in writing. For sponsoring organizations, these
written operational policies must assure:
(i) Fiscal integrity and accountability for all funds and property
received, held, and disbursed;
(ii) The integrity and accountability of all expenses incurred;
(iii) That claims are processed accurately, and in a timely manner;
[[Page 53540]]
(iv) That funds and property are properly safeguarded and used, and
expenses incurred, for authorized Program purposes; and
(v) That a system of safeguards and controls is in place to prevent
and detect improper financial activities by employees;
(3) Recordkeeping. Maintains appropriate records to document
compliance with Program requirements, including budgets, accounting
records, approved budget amendments, and, if a sponsoring organization,
management plans and appropriate records on facility operations;
(4) Sponsoring organization operations. A renewing sponsoring
organization must document in its management plan that it will:
(i) Provide adequate and regular training of sponsoring
organization staff and sponsored facilities in accordance with Sec.
226.15(e)(12) and (e)(14) and Sec. 226.16(d)(2) and (d)(3);
(ii) Perform monitoring in accordance with Sec. 226.16(d)(4), to
ensure that sponsored facilities accountably and appropriately operate
the Program;
(iii) If a sponsor of family day care homes, accurately classify
day care homes as tier I or tier II in accordance with Sec. 226.15(f);
and
(iv) Have a system in place to ensure that administrative costs
funded from Program reimbursements do not exceed regulatory limits set
forth at Sec. Sec. 226.12(a) and 226.16(b)(1); and
(5) Meal service and other operational requirements. All
independent centers and facilities must follow practices that result in
the operation of the Program in accordance with the meal service,
recordkeeping, and other operational requirements of this part. These
practices must be documented in the independent center's application or
in the sponsoring organization's management plan and must demonstrate
that independent centers or sponsored facilities:
(i) Provide meals that meet the meal patterns set forth in Sec.
226.20;
(ii) Comply with licensure or approval requirements set forth in
paragraph (d) of this section;
(iii) Have a food service that complies with applicable State and
local health and sanitation requirements;
(iv) Comply with civil rights requirements;
(v) Maintain complete and appropriate records on file; and
(vi) Claim reimbursement only for eligible meals.
(3) State agency notification requirements. Any new or renewing
institution applying for participation in the Program must be notified
in writing of approval or disapproval by the State agency, within 30
calendar days of the State agency's receipt of a complete application.
Whenever possible, State agencies should provide assistance to
institutions that have submitted an incomplete application. Any
disapproved applicant institution or family day care home must be
notified of the reasons for its disapproval and its right to appeal
under paragraph (k) or (l), respectively, of this section.
(4) Program agreements. (i) The State agency must require each
institution that has been approved for participation in the Program to
enter into an agreement governing the rights and responsibilities of
each party. The State agency may allow a renewing institution to amend
its existing Program agreement in lieu of executing a new agreement.
The existence of a valid agreement, however, does not eliminate the
need for an institution to comply with the reapplication and related
provisions at paragraphs (b) and (f) of this section.
(ii) State agencies may elect to enter into permanent agreements
with institutions. However, if they elect not to enter into permanent
agreements with institutions, the length of time during which such
agreements are in effect must be no less than one and no more than
three years, except that:
(A) The State agency and an institution that is a school food
authority must enter into a single permanent agreement for all child
nutrition programs administered by the school food authority and the
State agency;
(B) If a State agency denies the application of a renewing
institution, it must temporarily extend its agreement with that
institution in accordance with paragraph (c)(2)(iii)(D) of this
section;
(C) If the State agency determines that unusual circumstances
warrant reapplication in less than 12 months, the State agency may
approve the agreement with the institution for a period of less than
one year.
(iii) Any agreement that extends from one fiscal year into the
following fiscal year must stipulate that, in subsequent years, the
agreement is in effect contingent upon the availability of Program
funds. However, this does not limit the State agency's ability to
terminate the agreement in accordance with paragraph (c) of this
section.
(iv) The Program agreement must provide that the institution
accepts final financial and administrative responsibility for
management of a proper, efficient, and effective food service, and will
comply with all requirements under this part. In addition, the
agreement must state that the sponsor must comply with all requirements
of title VI of the Civil Rights Act of 1964, title IX of the Education
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, the
Age Discrimination Act of 1975 and the Department's regulations
concerning nondiscrimination (parts 15, 15a and 15b of this title),
including requirements for racial and ethnic participation data
collection, public notification of the nondiscrimination policy, and
reviews to assure compliance with such policy, to the end that no
person may, on the grounds of race, color, national origin, sex, age,
or disability, be excluded from participation in, be denied the
benefits of, or be otherwise subjected to discrimination under, the
Program.
(v) The Program agreement must also notify the institution of the
right of the State agency, the Department, and other State or Federal
officials to make announced or unannounced reviews of their operations
during the institution's normal hours of child or adult care
operations, and that anyone making such reviews must show photo
identification that demonstrates that they are employees of one of
these entities.
* * * * *
(f) Miscellaneous responsibilities. State agencies must require
institutions to comply with the applicable provisions of this part and
must provide or collect the information specified in this paragraph
(f).
(1) Annual responsibilities. In addition to its other
responsibilities under this part, each State agency must annually:
(i) Inform institutions that are pricing programs of their
responsibility to ensure that free and reduced-price meals are served
to participants unable to pay the full price;
(ii) Provide to all institutions a copy of the income standards to
be used by institutions for determining the eligibility of participants
for free and reduced-price meals under the Program;
(iii) Coordinate with the State agency that administers the
National School Lunch Program to ensure the receipt of a list of
elementary schools in the State in which at least one-half of the
children enrolled are certified eligible to receive free or reduced-
price meals. The State agency must provide the list to sponsoring
organizations of day care homes by February 15 of each year, unless the
State agency that administers the National School Lunch Program has
elected to base data for the list on a month other than October, in
which case the State agency must provide the list to such sponsoring
organizations
[[Page 53541]]
within 15 calendar days of its receipt from the State agency that
administers the National School Lunch Program. The State agency must
also provide each sponsoring organization of day care homes with census
data, as provided to the State agency by FNS upon its availability on a
decennial basis, showing areas in the State in which at least 50
percent of the children are from households meeting the income
standards for free or reduced-price meals. In addition, the State
agency must ensure that the most recent available data is used if the
determination of a day care home's eligibility as a tier I day care
home is made using school or census data. Determinations of a day care
home's eligibility as a tier I day care home must be valid for one year
if based on a provider's household income, three years if based on
school data, or until more current data are available if based on
census data. However, a sponsoring organization, the State agency, or
FNS may change the determination if information becomes available
indicating that a day care home is no longer in a qualified area. The
State agency must not routinely require annual redeterminations of the
tiering status of tier I day care homes based on updated elementary
school data;
(iv) Provide all sponsoring organizations of day care homes in the
State with a listing of State-funded programs, participation in which
by a parent or child will qualify a meal served to a child in a tier II
home for the tier I rate of reimbursement;
(v) Require centers to submit current eligibility information on
enrolled participants, in order to calculate a blended rate or claiming
percentage in accordance with Sec. 226.9(b);
(vi) Require each sponsoring organization to submit an
administrative budget with sufficiently detailed information concerning
projected CACFP administrative earnings and expenses, as well as other
non-Program funds to be used in Program administration, for the State
agency to determine the allowability, necessity, and reasonableness of
all proposed expenditures, and to assess the sponsoring organization's
capability to manage Program funds. The administrative budget must
demonstrate that the sponsoring organization will expend and account
for funds in accordance with regulatory requirements, FNS Instruction
796-2 (``Financial Management in the Child and Adult Care Food
Program''), parts 3015, 3016, and 3019 of this title, and applicable
Office of Management and Budget circulars. In addition, the
administrative budget submitted by a sponsor of centers must
demonstrate that the administrative costs to be charged to the Program
do not exceed 15 percent of the meal reimbursements estimated or
actually earned during the budget year, unless the State agency grants
a waiver in accordance with Sec. 226.7(g);
(vii) Require each institution to issue a media release, unless the
State agency has issued a Statewide media release on behalf of all its
institutions;
(viii) Require each independent center to provide information
concerning its licensing/approval status, and require each sponsoring
organization to provide information concerning the licensing/approval
status of its facilities, unless the State agency has other means of
confirming the licensing/approval status of any independent center or
facility providing care;
(ix) Require each sponsoring organization to submit verification
that all facilities under its sponsorship have adhered to the training
requirements set forth in Program regulations; and
(x) Require each sponsoring organization of family day care homes
to submit to the State agency a list of family day care home providers
receiving tier I benefits on the basis of their participation in the
Food Stamp Program. Within 30 days of receiving this list, the State
agency will provide this list to the State agency responsible for the
administration of the Food Stamp Program.
(2) Triennial responsibilities. In addition to its other
responsibilities under this part, each State agency must, at intervals
not to exceed 36 months:
(i) Require participating institutions to re-apply to continue
their participation; and
(ii) Require sponsoring organizations to submit a management plan
with the elements set forth in paragraph (b)(1)(iv) of this section.
(3) Other responsibilities. At intervals and in a manner specified
by the State agency, but not more frequently than annually, the State
agency may:
(i) Require independent centers to submit a budget with
sufficiently detailed information and documentation to enable the State
agency to make an assessment of the independent center's qualifications
to manage Program funds. Such budget must demonstrate that the
independent center will expend and account for funds in accordance with
regulatory requirements, FNS Instruction 796-2 (``Financial Management
in the Child and Adult Care Food Program''), parts 3015, 3016 and 3019
of this title and applicable Office of Management and Budget circulars;
(ii) Request institutions to report their commodity preference;
(iii) Require a private nonprofit institution to submit evidence of
tax exempt status in accordance with Sec. 226.15(a);
(iv) Require proprietary title XX child care centers to submit
documentation that they are currently providing nonresidential day care
services for which they receive compensation under title XX of the
Social Security Act, and certification that not less than 25 percent of
enrolled participants or 25 percent of the licensed capacity, whichever
is less, in each such center during the most recent calendar month were
title XX beneficiaries;
(v) Require proprietary title XIX or title XX adult care centers to
submit documentation that they are currently providing nonresidential
day care services for which they receive compensation under title XIX
or title XX of the Social Security Act, and certification that not less
than 25 percent of enrolled participants in each such center during the
most recent calendar month were title XIX or title XX beneficiaries;
(vi) Request each institution to indicate its choice to receive
all, part or none of advance payments, if the State agency chooses to
make advance payments available; and
(vii) Perform verification in accordance with Sec. 226.23(h) and
paragraph (m)(4) of this section. State agencies verifying the
information on free and reduced-price applications must ensure that
verification activities are conducted without regard to the
participant's race, color, national origin, sex, age, or disability.
(g) Program expansion. Each State agency must take action to expand
the availability of benefits under this Program, and must conduct
outreach to potential sponsoring organizations of family day care homes
that might administer the Program in low-income or rural areas.
(h) * * * The State agency must require new institutions to state
their preference to receive commodities or cash-in-lieu of commodities
when they apply, and may periodically inquire as to participating
institutions' preference to receive commodities or cash-in-lieu of
commodities. State agencies must annually provide institutions with
information on foods available in plentiful supply, based on
information provided by the Department. * * *
* * * * *
(j) Procurement provisions. State agencies must require
institutions to
[[Page 53542]]
adhere to the procurement provisions set forth in Sec. 226.22 and must
determine that all meal procurements with food service management
companies are in conformance with bid and contractual requirements of
Sec. 226.22.
* * * * *
(m) Program assistance. (1) General. The State agency must provide
technical and supervisory assistance to institutions and facilities to
facilitate effective Program operations, monitor progress toward
achieving Program goals, and ensure compliance with all requirements of
title VI of the Civil Rights Act of 1964, title IX of the Education
amendments of 1972, section 504 of the Rehabilitation Act of 1973, the
Age Discrimination Act of 1975, and the Department's regulations
concerning nondiscrimination (parts 15, 15a, and 15b of this title).
The State agency must maintain documentation of supervisory assistance
activities, including reviews conducted, corrective actions prescribed,
and follow-up efforts.
(2) Review priorities. In choosing institutions for review, in
accordance with paragraph (m)(6) of this section, the State agency must
target for more frequent review institutions whose prior review
included a finding of serious deficiency.
(3) Review content. As part of its conduct of reviews, the State
agency must assess each institution's compliance with the requirements
of this part pertaining to:
(i) Recordkeeping;
(ii) Meal counts;
(iii) Administrative costs;
(iv) Any applicable instructions and handbooks issued by FNS and
the Department to clarify or explain this part, and any instructions
and handbooks issued by the State agency which are not inconsistent
with the provisions of this part;
(v) Facility licensing and approval;
(vi) Compliance with the requirements for annual updating of
enrollment forms;
(vii) If an independent center, observation of a meal service;
(viii) If a sponsoring organization, training and monitoring of
facilities;
(ix) If a sponsoring organization of day care homes, implementation
of the serious deficiency and termination procedures for day care homes
and, if such procedures have been delegated to sponsoring organizations
in accordance with paragraph (l)(1) of this section, the administrative
review procedures for day care homes;
(x) If a sponsoring organization, implementation of the household
contact system established by the State agency pursuant to paragraph
(m)(5) of this section;
(xi) If a sponsoring organization of day care homes, the
requirements for classification of tier I and tier II day care homes;
and
(xii) All other Program requirements.
(4) Review of sponsored facilities. As part of each required review
of a sponsoring organization, the State agency must select a sample of
facilities, in accordance with paragraph (m)(6) of this section. As
part of such reviews, the State agency must conduct verification of
Program applications in accordance with Sec. 226.23(h) and must
compare available enrollment and attendance records and the sponsoring
organization's review results for that facility to meal counts
submitted by those facilities for five days.
(5) Household contacts. As part of their monitoring of
institutions, State agencies must establish systems for making
household contacts to verify the enrollment and attendance of
participating children. Such systems must specify the circumstances
under which household contacts will be made, as well as the procedures
for conducting household contacts. In addition, State agencies must
establish a system for sponsoring organizations to use in making
household contacts as part of their review and oversight of
participating facilities. Such systems must specify the circumstances
under which household contacts will be made, as well as the procedures
for conducting household contacts. State agencies must submit to
FNSROs, no later than April 1, 2005, the policies and procedures they
have developed governing household contacts conducted by both the State
agency, as part of institution and facility reviews conducted in
accordance with this paragraph (m), and by sponsoring organizations as
part of the facility review process described in Sec. 226.16(d)(5).
(6) Frequency and number of required institution reviews. The State
agency must annually review at least 33.3 percent of all institutions.
At least 15 percent of the total number of facility reviews required
must be unannounced. The State agency must review institutions
according to the following schedule:
(i) Independent centers and sponsoring organizations of 1 to 100
facilities must be reviewed at least once every three years. A review
of such a sponsoring organization must include reviews of 10 percent of
the sponsoring organization's facilities;
(ii) Sponsoring organizations with more than 100 facilities must be
reviewed at least once every two years. These reviews must include
reviews of 5 percent of the first 1,000 facilities and 2.5 percent of
the facilities in excess of 1,000; and
(iii) New institutions that are sponsoring organizations of five or
more facilities must be reviewed within the first 90 days of Program
operations.
* * * * *
(o) * * * If violations are not corrected within the specified
timeframe for corrective action, the State agency must issue a notice
of serious deficiency in accordance with paragraph (c) of this section
or Sec. 226.16(l), as appropriate. However, if the health or safety of
the children is imminently threatened, the State agency or sponsoring
organization must follow the procedures set forth at paragraph
(c)(5)(i) of this section, or Sec. 226.16(l)(4), as appropriate. * * *
* * * * *
(r) WIC program information. State agencies must provide
information on the importance and benefits of the Special Supplemental
Nutrition Program for Women, Infants, and Children (WIC) and WIC income
eligibility guidelines, to participating institutions. In addition, the
State agency must ensure that:
(1) Participating family day care homes and sponsored child care
centers receive this information, and periodic updates of this
information, from their sponsoring organizations or the State agency;
and
(2) The parents of enrolled children also receive this information.
0
6. In Sec. 226.7:
0
a. Paragraph (g) is revised.
0
b. Paragraph (k) is amended by adding a new sentence after the first
sentence.
The revision and addition specified above read as follows:
Sec. 226.7 State agency responsibilities for financial management.
* * * * *
(g) Budget approval. The State agency must review institution
budgets and must limit allowable administrative claims by each
sponsoring organization to the administrative costs approved in its
budget. The budget must demonstrate the institution's ability to manage
Program funds in accordance with this part, FNS Instruction 796-2
(``Financial Management in the Child and Adult Care Food Program''),
parts 3015, 3016, and 3019 of this title, and applicable Office of
Management and Budget circulars. Sponsoring organizations must submit
an administrative budget to the State agency annually, and independent
centers must submit budgets as
[[Page 53543]]
frequently as required by the State agency. Budget levels may be
adjusted to reflect changes in Program activities. For sponsoring
organizations of centers, the State agency is prohibited from approving
the sponsoring organization's administrative budget, or any amendments
to the budget, if the administrative budget shows the Program will be
charged for administrative costs in excess of 15 percent of the meal
reimbursements estimated to be earned during the budget year. However,
the State agency may waive this limit if the sponsoring organization
provides justification that it requires Program funds in excess of 15
percent to pay its administrative costs and if the State agency is
convinced that the institution will have adequate funding to provide
meals meeting the requirements of Sec. 226.20. The State agency must
document all waiver approvals and denials in writing, and must provide
a copy of all such letters to the appropriate FNSRO.
* * * * *
(k) * * * Such procedures must include State agency edit checks,
including but not limited to ensuring that payments are made only for
approved meal types and that the number of meals for which
reimbursement is provided does not exceed the product of the total
enrollment times operating days times approved meal types. * * *
* * * * *
0
7. In Sec. 226.8:
0
a. Paragraphs (a) and (b) are revised.
0
b. Paragraph (c) is amended by adding the words ``or agreed-upon
procedures engagements' after the words ``administrative reviews'' in
the second sentence.
The revisions specified above read as follows:
Sec. 226.8 Audits.
(a) Unless otherwise exempt, audits at the State and institution
levels must be conducted in accordance with Office of Management and
Budget circular A-133 and the Department's implementing regulations at
part 3052 of this title. State agencies must establish audit policy for
title XIX and title XX proprietary institutions. However, the audit
policy established by the State agency must not conflict with the
authority of the State agency or the Department to perform, or cause to
be performed, audits, reviews, agreed-upon procedures engagements, or
other monitoring activities.
(b) The funds provided to the State agency under Sec. 226.4(h) may
be made available to institutions to fund a portion of organization-
wide audits made in accordance with part 3052 of this title. The funds
provided to an institution for an organization-wide audit must be
determined in accordance with Sec. 3052.230(a) of this title.
* * * * *
0
8. In Sec. 226.10:
0
a. The first sentence of paragraph (a) is revised.
0
b. Paragraph (c) is amended by adding two new sentences at the end of
the introductory text and by adding new paragraphs (c)(1), (c)(2), and
(c)(3).
0
c. Paragraph (f) is revised.
The addition and revisions specified above read as follows:
Sec. 226.10 Program payment procedures.
(a) If a State agency elects to issue advance payments to all or
some of the participating institutions in the State, it must provide
such advances no later than the first day of each month to those
eligible institutions electing to receive advances in accordance with
Sec. 226.6 (f)(3)(vi). * * *
* * * * *
(c) * * * Prior to submitting its consolidated monthly claim to the
State agency, each sponsoring organization must perform edit checks on
each facility's meal claim. At a minimum, the sponsoring organization's
edit checks must:
(1) Verify that each facility has been approved to serve the types
of meals claimed;
(2) Compare the number of children enrolled for care at each
facility, multiplied by the number of days on which the facility is
approved to serve meals, to the total number of meals claimed by the
facility for that month. Discrepancies between the facility's meal
claim and its enrollment must be subjected to more thorough review to
determine if the claim is accurate; and
(3) Detect block claiming (as defined in Sec. 226.2) by any
facility. If block claiming is detected, the sponsoring organization
must not include that facility among those facilities receiving less
than three reviews during the current year, in accordance with Sec.
226.16(d)(4), and must ensure that any facility submitting a block
claim receives an unannounced review within 60 days of the discovery of
the block claim. If, in the course of conducting this review, the
sponsoring organization determines that there is a logical explanation
for the facility to regularly submit a block claim, the sponsoring
organization must note this in the facility's review file and is not
required to conduct an unannounced visit after other block claims
detected during the current year. In addition, if a State agency
determines that the conduct of all required unannounced reviews within
60 days will impose unwarranted burdens on a particular sponsoring
organization, the State agency may provide that sponsoring organization
with up to 30 additional days to complete the required unannounced
reviews.
* * * * *
(f) If, based on the results of audits, investigations, or other
reviews, a State agency has reason to believe that an institution,
child or adult care facility, or food service management company has
engaged in unlawful acts with respect to Program operations, the
evidence found in audits, investigations, or other reviews is a basis
for non-payment of claims for reimbursement.
0
9. In Sec. 226.11:
0
a. The section heading is revised.
0
b. Paragraph (a) is amended by removing the second sentence and adding
two new sentences in its place.
0
c. Paragraph (b) is amended by adding a new sentence to the end of the
paragraph.
0
d. Paragraph (c)(1) is revised.
The additions and revision specified above read as follows:
Sec. 226.11 Program payments for centers.
(a) * * * A State agency may develop a policy under which centers
are reimbursed for meals served in accordance with provisions of the
Program in the calendar month preceding the calendar month in which the
agreement is executed, or the State agency may develop a policy under
which centers earn reimbursement only for meals served in approved
centers on or after the effective date of the Program agreement. If the
State agency's policy permits centers to earn reimbursement for meals
served prior to the execution of a Program agreement, Program
reimbursement must not be received by the center until the agreement is
executed.
(b) * * * Prior to submitting its consolidated monthly claim to the
State agency, each sponsoring organization must conduct reasonable edit
checks on the sponsored centers' meal claims which, at a minimum,
include those edit checks specified at Sec. 226.10(c).
(c) * * *
(1) Base reimbursement to child care centers and adult day care
centers on actual time of service meal counts, and multiply the number
of meals, by type, served to participants eligible to receive free
meals, served to participants eligible to receive reduced-price meals,
and served to participants from families
[[Page 53544]]
not meeting such standards by the applicable national average payment
rate; or
* * * * *
0
10. In Sec. 226.13:
0
a. Paragraph (b) is amended by adding a new sentence to the end of the
paragraph; and
0
b. Paragraph (c) is amended by adding the words ``based on daily meal
counts taken in the home'' after the words ``as applicable,''.
The addition specified above reads as follows:
Sec. 226.13 Food service payments to sponsoring organizations for day
care homes.
* * * * *
(b) * * * Prior to submitting its consolidated monthly claim to the
State agency, each sponsoring organization must conduct reasonable edit
checks on the day care homes' meal claims which, at a minimum, include
those edit checks specified at Sec. 226.10(c).
* * * * *
Sec. 226.14 [Amended]
0
11. In Sec. 226.14(a), the reference ``Sec. 226.6(f)(3)'' is removed
and the reference Sec. 226.7(g)'' is added in its place.
0
12. In Sec. 226.15:
0
a. Paragraph (b) is revised.
0
b. Paragraph (e)(2) is revised.
0
c. Paragraph (e)(3) is amended by adding a new sentence to the end of
the paragraph.
0
d. Paragraph (e)(4) is revised.
0
e. Paragraph (e)(5) is removed and paragraphs (e)(6) through (e)(14)
are redesignated as paragraphs (e)(5) through (e)(13), respectively.
0
f. New paragraph (e)(14) is added.
0
g. Paragraphs (g) through (k) are redesignated as paragraphs (h)
through (l), and a new paragraph (g) is added.
0
h. Newly redesignated paragraph (i) is amended by removing the
reference ``Sec. 226.6(f)(1)'' and adding in its place the reference
``Sec. 226.6(b)(4)''.
0
i. New paragraphs (m) and (n) are added.
The additions and revisions specified above read as follows:
Sec. 226.15 Institution provisions.
* * * * *
(b) New applications and renewals. Each institution must submit to
the State agency with its application all information required for its
approval as set forth in Sec. 226.6(b) and 226.6(f). Such information
must demonstrate that a new institution has the administrative and
financial capability to operate the Program in accordance with this
part and with the performance standards set forth in Sec.
226.6(b)(1)(xvii), and that a renewing institution has the
administrative and financial capability to operate the Program in
accordance with this part and with the performance standards set forth
in Sec. 226.6(b)(2)(vii).
* * * * *
(e) * * *
(2) Documentation of the enrollment of each participant at child
care centers (except for outside-school-hours care centers) and adult
day care centers. All types of centers must maintain information used
to determine eligibility for free or reduced-price meals in accordance
with Sec. 226.23(e)(1). For child care centers, such documentation of
enrollment must be updated annually, signed by a parent or legal
guardian, and include information on each child's normal days and hours
of care and the meals normally received while in care.
(3) * * * Such documentation of enrollment must be updated
annually, signed by a parent or legal guardian, and include information
on each child's normal days and hours of care and the meals normally
received while in care.
(4) Daily records indicating the number of participants in
attendance and the daily meal counts, by type (breakfast, lunch,
supper, and snacks), served to family day care home participants, or
the time of service meal counts, by type (breakfast, lunch, supper, and
snacks), served to center participants. State agencies may require
family day care homes to record meal counts at the time of meal service
only in day care homes providing care for more than 12 children in a
single day, or in day care homes that have been found seriously
deficient due to problems with their meal counts and claims.
* * * * *
(14) For sponsoring organizations, records documenting the
attendance at training of each staff member with monitoring
responsibilities. Training must include instruction, appropriate to the
level of staff experience and duties, on the Program's meal patterns,
meal counts, claims submission and claim review procedures,
recordkeeping requirements, and an explanation of the Program's
reimbursement system.
* * * * *
(g) Payment to employees. No institution that is a sponsoring
organization of family day care homes and that employs more than one
person is permitted to base payment (including bonuses or gratuities)
to its employees, contractors, or family day care home providers solely
on the number of new family day care homes recruited for the sponsoring
organization's Program.
* * * * *
(m) Regulations and guidance. Each institution must comply with all
regulations issued by FNS and the Department, all instructions and
handbooks issued by FNS and the Department to clarify or explain
existing regulations, and all regulations, instructions and handbooks
issued by the State agency that are consistent with the provisions
established in Program regulations.
(n) Information on WIC. Each institution must ensure that parents
of enrolled children are provided with current information on the
benefits and importance of the Special Supplemental Nutrition Program
for Women, Infants, and Children (WIC) and the eligibility requirements
for WIC participation.
0
13. In Sec. 226.16:
0
a. The introductory text to paragraph (b) and paragraph (b)(1) are
revised.
0
b. Paragraphs (d)(2), (d)(3) and (d)(4) are revised.
0
c. New paragraph (d)(5) is added.
0
d. Paragraph (l)(2)(vii) is amended by removing the word ``or'' after
the semicolon.
0
e. Paragraph (l)(2)(viii) is redesignated as (l)(2)(ix) and a new
paragraph (l)(2)(viii) is added in its place.
0
f. New paragraph (m) is added.
The additions and revisions specified above read as follows: ?>
Sec. 226.16 Sponsoring organization provisions.
* * * * *
(b) Each sponsoring organization must submit to the State agency
with its application all information required for its approval, and the
approval of the facilities under its jurisdiction, as set forth in
Sec. Sec. 226.6(b) and 226.6(f). The application must demonstrate that
the institution has the administrative and financial capability to
operate the Program in accordance with the Program regulations. In
addition to the information required in Sec. Sec. 226.6(b) and
226.6(f), the application must include:
(1) A sponsoring organization management plan and administrative
budget, in accordance with Sec. Sec. 226.6(b)(1)(iv), 226.6(b)(1)(v),
226.6(b)(2)(i), 226.6(f)(2)(ii), and 226.7(g), which includes
information sufficient to document the sponsoring organization's
compliance with the performance standards set forth at Sec.
226.6(b)(1)(xvii) and 226.6(b)(2)(vii). As part of its management plan,
a sponsoring organization of day care homes must document that, to
perform monitoring, it will employ the equivalent of one full-time
staff person
[[Page 53545]]
for each 50 to 150 day care homes it sponsors. As part of its
management plan, a sponsoring organization of centers must document
that, to perform monitoring, it will employ the equivalent of one full-
time staff person for each 25 to 150 centers it sponsors. It is the
State agency's responsibility to determine the appropriate level of
staffing for monitoring for each sponsoring organization, consistent
with these specified ranges and factors that the State agency will use
to determine the appropriate level of monitoring staff for each
sponsor. The monitoring staff equivalent may include the employee's
time spent on scheduling, travel time, review time, follow-up activity,
report writing, and activities related to the annual updating of
children's enrollment forms. Sponsoring organizations that were
participating in the Program on July 29, 2002, were to have submitted,
no later than July 29, 2003, a management plan or plan amendment that
meets the monitoring staffing requirement. For sponsoring organizations
of centers, the portion of the administrative costs to be charged to
the Program may not exceed 15 percent of the meal reimbursements
estimated or actually earned during the budget year, unless the State
agency grants a waiver in accordance with Sec. 226.7(g). A sponsoring
organization of centers must include in the administrative budget all
administrative costs, whether incurred by the sponsoring organization
or its sponsored centers. If at any point a sponsoring organization
determines that the meal reimbursements estimated to be earned during
the budget year will be lower than that estimated in its administrative
budget, the sponsoring organization must amend its administrative
budget to stay within the 15 percent limitation (or any higher limit
established pursuant to a waiver granted under Sec. 226.7(g)) or seek
a waiver. Failure to do so will result in appropriate fiscal action in
accordance with Sec. 226.14(a).
* * * * *
(d) * * *
(2) Training on Program duties and responsibilities to key staff
from all sponsored facilities prior to the beginning of Program
operations. At a minimum, such training must include instruction,
appropriate to the level of staff experience and duties, on the
Program's meal patterns, meal counts, claims submission and review
procedures, recordkeeping requirements, and reimbursement system.
Attendance by key staff, as defined by the State agency, is mandatory;
(3) Additional mandatory training sessions for key staff from all
sponsored child care and adult day care facilities not less frequently
than annually. At a minimum, such training must include instruction,
appropriate to the level of staff experience and duties, on the
Program's meal patterns, meal counts, claims submission and review
procedures, recordkeeping requirements, and reimbursement system.
Attendance by key staff, as defined by the State agency, is mandatory;
(4)(i) Review elements. Reviews that assess whether the facility
has corrected problems noted on the previous review(s), a
reconciliation of the facility's meal counts with enrollment and
attendance records for a five-day period, as specified in paragraph
(d)(4)(ii) of this section, and an assessment of the facility's
compliance with the Program requirements pertaining to:
(A) The meal pattern;
(B) Licensing or approval;
(C) Attendance at training;
(D) Meal counts;
(E) Menu and meal records; and
(F) The annual updating and content of enrollment forms (if the
facility is required to have enrollment forms on file, as specified in
Sec. 226.15(e)(2) and 226.15(e)(3)).
(ii) Reconciliation of meal counts. Reviews must examine the meal
counts recorded by the facility for five consecutive days during the
current and/or prior claiming period. For each day examined, reviewers
must use enrollment and/or attendance records to determine the number
of children in care during each meal service and attempt to reconcile
those numbers to the numbers of breakfasts, lunches, suppers, and/or
snacks recorded in the facility's meal count for that day. Based on
that comparison, reviewers must determine whether the meal counts were
accurate. If there is a discrepancy between the number of children
enrolled or in attendance on the day of review and prior meal counting
patterns, the reviewer must attempt to reconcile the difference and
determine whether the establishment of an overclaim is necessary.
(iii) Frequency and type of required facility reviews. Sponsoring
organizations must review each facility three times each year, except
as described in paragraph (d)(4)(iv) of this section. In addition:
(A) At least two of the three reviews must be unannounced;
(B) At least one unannounced review must include observation of a
meal service;
(C) At least one review must be made during each new facility's
first four weeks of Program operations; and
(D) Not more than six months may elapse between reviews.
(iv) Averaging of required reviews. If a sponsoring organization
conducts two unannounced reviews of a facility in a year and finds no
serious deficiencies (as described in paragraph (l)(2) of this section,
regardless of the type of facility), the sponsoring organization may
choose not to conduct a third review of the facility that year,
provided that the sponsoring organization conducts an average of three
reviews of all of its facilities that year. When the sponsoring
organization uses this averaging provision, and a specific facility
receives two reviews in one review year, its first review in the next
review year must occur no more than nine months after the previous
review. Sponsoring organizations may not review a sponsored facility
fewer than three times per year if the facility has submitted a block
claim during the year.
(v) Follow-up reviews. If, in conducting a facility review, a
sponsoring organization detects one or more serious deficiency, the
next review of that facility must be unannounced. Serious deficiencies
are those described at paragraph (l)(2) of this section, regardless of
the type of facility.
(vi) Notification of unannounced reviews. Sponsoring organizations
of centers must provide each center with written notification of the
right of the sponsoring organization, the State agency, the Department,
and other State and Federal officials to make announced or unannounced
reviews of its operations during the center's normal hours of
operation, and must also notify sponsored centers that anyone making
such reviews must show photo identification that demonstrates that they
are employees of one of these entities. For sponsored centers
participating on July 29, 2002, the sponsoring organization was to have
provided this notice no later than August 29, 2002. For sponsored
centers that are approved after July 29, 2002, the sponsoring
organization must provide the notice before meal service under the
Program begins. Sponsoring organizations must provide day care homes
notification of unannounced visits in accordance with Sec.
226.18(b)(1).
(vii) Other requirements pertaining to unannounced reviews.
Unannounced reviews must be made only during the facility's normal
hours of operation, and monitors making such reviews must show photo
identification that demonstrates that they are employees of the
sponsoring organization, the State
[[Page 53546]]
agency, the Department, or other State and Federal agencies authorized
to audit or investigate Program operations.
ii) Imminent threat to health or safety. Sponsoring organizations
that discover in a facility conduct or conditions that pose an imminent
threat to the health or safety of participating children or the public,
must immediately notify the appropriate State or local licensing or
health authorities and take action that is consistent with the
recommendations and requirements of those authorities.
(5) For sponsoring organizations, as part of their monitoring of
facilities, compliance with the household contact requirements
established pursuant to Sec. 226.6(m)(5) of this part.
* * * * *
(l) * * *
(2) * * *
(viii) Failure to participate in training; or
* * * * *
(m) Sponsoring organizations of family day care homes must not make
payments to employees or contractors solely on the basis of the number
of homes recruited. However, such employees or contractors may be paid
or evaluated on the basis of recruitment activities accomplished.
0
14. In Sec. 226.17:
0
a. Paragraph (b)(3) is amended by removing the words ``, except that
reimbursement may be claimed for two meals and two snacks or three
meals and one snack served to a child for each day in which that child
is maintained in care for eight or more hours''.
0
b. Paragraph (b)(7) is amended by adding a new sentence at the end of
the paragraph.
0
c. Paragraph (b)(8) is revised. d. A new paragraph (b)(9) is added.
The additions and revision specified above read as follows:
Sec. 226.17 Child care center provisions.
* * * * *
(b) * * *
(7) * * * Such documentation of enrollment must be updated
annually, signed by a parent or legal guardian, and include information
on each child's normal days and hours of care and the meals normally
received while in care.
(8) Each child care center must maintain daily records of time of
service meal counts by type (breakfast, lunch, supper, and snacks)
served to enrolled children, and to adults performing labor necessary
to the food service.
(9) Each child care center must require key staff, as defined by
the State agency, to attend Program training prior to the center's
participation in the Program, and at least annually thereafter, on
content areas established by the State agency.
* * * * *
0
15. In Sec. 226.18:
0
a. Paragraph (b)(2) is revised.
0
b. Paragraph (b)(7) is amended by removing the semicolon at the end of
the paragraph and adding a period in its place, and by adding a new
sentence at the end of the paragraph.
0
c. Paragraph (e) is amended by removing the first sentence and adding
two new sentences in its place.
The revisions and additions specified above read as follows:
Sec. 226.18 Day care home provisions.
* * * * *
(b) * * *
(2) The responsibility of the sponsoring organization to require
key staff, as defined by the State agency, to receive Program training
prior to the day care home's participation in the Program, and at least
annually thereafter, on content areas established by the State agency,
and the responsibility of the day care home to participate in that
training;
* * * * *
(7) * * * The sponsoring organization must not withhold Program
payments to any family day care home for any other reason, except that
the sponsoring organization may withhold from the provider any amounts
that the sponsoring organization has reason to believe are invalid, due
to the provider having submitted a false or erroneous meal count;
* * * * *
(e) Each day care home must maintain on file documentation of each
child's enrollment and must maintain daily records of the number of
children in attendance and the number of meals, by type, served to
enrolled children. Such documentation of enrollment must be updated
annually, signed by a parent or legal guardian, and include information
on each child's normal days and hours of care and the meals normally
received while in care. * * *
* * * * *
0
16. In Sec. 226.19:
0
a. Paragraph (b)(6) is removed and paragraphs (b)(7) through (b)(9) are
redesignated as paragraphs (b)(6) through (b)(8), respectively.
0
b. Paragraphs (b)(1) and (b)(4), and newly redesignated paragraphs
(b)(7)(iv) and (b)(7)(v), are amended by removing the word ``enrolled''
wherever it occurs.
0
c. Paragraph (b)(3)(i) is revised.
0
d. Paragraph (b)(5) is amended by removing the words ``, except that
reimbursement may be claimed for two meals and two snacks or three
meals and one snack served to a child for each day in which that child
is maintained in care for eight or more hours''.
0
e. Paragraph (b)(5) is further amended by removing the words ``meals
served to children who are not enrolled, for'' from the third sentence.
0
f. The introductory text of newly redesignated paragraph (b)(6) is
revised.
0
g. Newly redesignated paragraph (b)(6)(i) is amended by removing the
words ``enrolled for care and'' and adding in their place the words
``and to''.
0
h. Newly redesignated paragraph (b)(6)(iii) is removed and newly
redesignated paragraphs (b)(6)(iv), (b)(6)(v), and (b)(6)(vi) are
redesignated as paragraphs (b)(6)(iii), (b)(6)(iv), and (b)(6)(v),
respectively.
0
i. Newly redesignated paragraph (b)(7)(i) is amended by removing the
words ``Documentation of enrollment for all children, including
information'', and adding the word ``Information'' in their place.
The revisions specified above read as follows:
Sec. 226.19 Outside-school-hours care center provisions.
* * * * *
(b) * * *
(3) * * *
(i) Children participate in a regularly scheduled program that
meets the criteria of paragraph (b)(1) of this section. The program is
organized for the purpose of providing services to children and is
distinct from any extracurricular programs organized primarily for
scholastic, cultural, or athletic purposes; and
* * * * *
(6) Each outside-school-hours care center must require key
operational staff, as defined by the State agency, to attend Program
training prior to the center's participation in the Program, and at
least annually thereafter, on content areas established by the State
agency. Each meal service must be supervised by an adequate number of
operational personnel who have been trained in Program requirements as
outlined in this section. Operational personnel must ensure that:
* * * * *
0
17. In Sec. 226.19a:
0
a. Paragraph (b)(9) is revised.
0
b. A new paragraph (b)(11) is added.
The addition and revision specified above read as follows:
Sec. 226.19a Adult day care center provisions.
* * * * *
(b) * * *
(9) Each adult day care center must maintain daily records of time
of service
[[Page 53547]]
meal counts by type (breakfast, lunch, supper, and snacks) served to
enrolled participants, and to adults performing labor necessary to the
food service.
* * * * *
(11) Each adult day care center must require key operational staff,
as defined by the State agency, to attend Program training prior to the
facility's participation in the Program, and at least annually
thereafter, on content areas established by the State agency. Each meal
service must be supervised by an adequate number of operational
personnel who have been trained in Program requirements as outlined in
this section.
* * * * *
0
18. In Sec. 226.20, paragraphs (k) through (p) are redesignated as
paragraphs (l) through (q), respectively, and a new paragraph (k) is
added to read as follows:
Sec. 226.20 Requirements for meals.
* * * * *
(k) Time of meal service. State agencies may require any
institution or facility to allow a specific amount of time to elapse
between meal services or require that meal services not exceed a
specified duration.
* * * * *
0
19. In Sec. 226.23:
0
a. Paragraph (a) is revised.
0
b. Paragraph (c)(2) is amended by removing the words ``members of AFDC
assistance units or'' and adding in their place the words ``TANF
recipients or who are members of''.
0
c. The first sentence of paragraph (d) is amended by removing the
period after the words ``public release'' and adding in its place the
words ``, unless the State agency has issued a Statewide media release
on behalf of all institutions.''
0
d. The fifth sentence of paragraph (d) is amended by removing the words
``members of AFDC assistance units'' and adding in their place the
words ``TANF recipients''.
0
e. Paragraph (e)(1)(i) is amended by removing the words ``or AFDC
assistance unit'' and adding in their place the words ``or is a TANF
recipient''.
0
f. Paragraph (e)(1)(iv) is amended by removing the words ``AFDC
assistance units'' the first time they appear, and adding in their
place the words ``who are TANF recipients'', and by removing the words
``AFDC assistance units'' the second time they appear, and adding in
their place the words ``children who are TANF recipients''.
0
g. Paragraph (e)(1)(iv)(B) is amended by removing the words ``AFDC
benefits'' and adding in their place the words ``TANF benefits''.
0
h. Paragraph (h)(2)(i)(A) is amended by removing the words ``AFDC
assistance unit'' and adding in their place the words ``is a TANF
recipient''.
0
i. Paragraph (h)(2)(iii)(D) is amended by removing the word ``AFDC''
and adding in its place the word ``TANF''.
0
j. Paragraph (h)(2)(v)(C) is amended by removing the words ``food
stamp/FDPIR/AFDC'' and adding in their place the words ``food stamp/
FDPIR/TANF''.
0
k. Paragraph (h)(2)(vi) is amended by removing the word ``AFDC'' and
adding in its place the word ``TANF''.
The revision specified above reads as follows:
Sec. 226.23 Free and reduced-price meals.
(a) The State agency must not enter into a Program agreement with a
new institution until the institution has submitted, and the State
agency has approved, a written policy statement concerning free and
reduced-price meals to be used in all child and adult day care
facilities under its jurisdiction, as described in paragraph (b) of
this section. The State agency must not require an institution to
revise its free and reduced-price policy statement or its
nondiscrimination statement unless the institution makes a substantive
change to either policy. Pending approval of a revision to these
statements, the existing policy must remain in effect.
* * * * *
Sec. 226.25 [Amended]
0
19. In Sec. 226.25, paragraph (g) is removed.
Dated: August 20, 2004.
Eric M. Bost,
Under Secretary for Food, Nutrition, and Consumer Services.
[FR Doc. 04-19628 Filed 8-31-04; 8:45 am]
BILLING CODE 3410-30-P