[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
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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
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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 Aft