**UNITED STATES DEPARTMENT OF AGRICULTURE**

**CFDA 10.557 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS,
AND CHILDREN (WIC)**

**I. PROGRAM OBJECTIVES**

The objective of the Special Supplemental Nutrition Program for Women,
Infants and Children (WIC) is to provide supplemental nutritious foods,
nutrition education, and referrals to health care for low-income persons
during critical periods of growth and development. Such persons include
pregnant women, breast-feeding women up to one year postpartum,
non-breast-feeding women up to six months postpartum, infants (persons
under one year of age), and children under age five determined to be at
nutritional risk. Intervention during the prenatal period improves fetal
development and reduces the incidence of low birth weight, short
gestation, and anemia.

**II. PROGRAM PROCEDURES**

**Administration**

The U.S. Department of Agriculture (USDA) Food and Nutrition Service
(FNS) administers the WIC Program through grants awarded to State health
departments or comparable State agencies, Indian tribal governments,
bands or intertribal councils, or groups recognized by the Bureau of
Indian Affairs, U.S. Department of the Interior, or the Indian Health
Service (IHS) of the U.S. Department of Health and Human Services (HHS).
A State administering the WIC Program must sign a Federal/State
Agreement that commits it to observe applicable laws and regulations in
carrying out the program. The State agencies, in turn, award subgrants
to local agencies to certify applicants' eligibility for WIC Program
benefits and deliver such benefits to eligible persons.

**Program Funding**

The WIC Program is a grant program that is 100 percent federally funded
(7 CFR sections 246.16(a), (b), and (c)). No State matching requirement
exists. Funds are awarded by FNS on the basis of funding formulas
prescribed in the WIC Program regulations.

FNS allocates federally appropriated funds to WIC State agencies as
grants which are divided into two parts: a component for food costs and
a component for Nutrition Services and Administration (NSA) costs.
Resources made available to a State agency under these two components of
its initial Federal WIC formula grant may be modified by the cumulative
effect of the following requirements:

*Reallocations and Recoveries*

The WIC Program's authorizing statute and regulations require FNS to
recover unspent funds and reallocate them to State agencies.

*Conversion Authority*

A State agency that submits a plan to increase WIC participation under a
cost containment strategy, as outlined under the "Cost Containment
Requirements" section below, in excess of the increases projected by FNS
in the NSA funds allocation formula, may shift a portion of its food
grant component to its NSA component. This "conversion authority" is a
function of the "excess" participation increase and is determined by FNS
(See III.A.2, "Activities Allowed or Unallowed - Exceptions").

*Spending Options*

Federal legislation and regulations authorize a State agency to shift a
portion of its Federal WIC formula grant between grant periods (Federal
fiscal years) (See III.H, "Period of Availability of Federal Funds").

*Rebates*

A State agency may contract with a food manufacturer to receive a rebate
on each unit of the manufacturer's product purchased with Food
Instruments (FIs) redeemed by program participants. Such rebates are
credits against prior expenditures made during the month in which the
rebate was earned for WIC food costs (See III.B, "Allowable Costs/Cost
Principles").

*Vendor, Participant, and Local Agency Collections*

A State agency is authorized to retain Federal program funds recovered
through claims action against vendors, participants, and local agencies,
and to use such recoveries for program purposes. (See III.B, "Allowable
Costs/Cost Principles").

*Program Income*

Certain miscellaneous receipts a State agency collects as the result of
WIC program operations are classified as program income (See III.J,
"Program Income").

*State Funding*

Although the Federal Financial Participation (FFP) for WIC is 100
percent, some States voluntarily appropriate funds from their own
revenues to extend WIC services beyond the level that could be supported
by Federal funding alone.

**Certification**

Applicants for WIC Program benefits are screened at WIC clinic sites to
determine whether they meet the eligibility criteria in the following
categories: categorical, residency, income, and nutritional risk (See
III.E.1, "Eligibility - Eligibility for Individuals").

**Benefits**

The WIC Program provides participants with specific nutritious
supplemental foods, nutrition education, and health services referrals
at no cost. The authorized supplemental foods are prescribed from
standard food packages according to the category and nutritional need of
the participant. The seven food packages available are described in
detail in WIC Program regulations.

About 75 percent of the WIC Program's annual appropriation is used to
provide WIC participants with monthly food package benefits. The
remainder is used to provide additional services to participants and to
manage the program. Additional services provided to WIC participants
include nutrition education, breast-feeding promotion and support
activities, and client services, such as diet and health assessments,
referral services for other health care and social services, and
coordination activities.

**Food Benefit Delivery**

Supplemental foods are provided to participants in any one of the
following three ways (7 CFR section 246.12(b)):

*Direct Distribution Food Delivery Systems* (used in Mississippi, the
San Felipe Indian Tribal Organization in New Mexico, and in parts of
Illinois, Idaho, West Virginia, and the Acoma-Canoncito-Laguna Hospital
Board of New Mexico)

The State agency and/or its agent purchases supplemental foods in bulk
and issues them to participants at designated distribution facilities.

*Home Food Delivery Systems* (used in Vermont and in parts of Alaska,
North Dakota, Texas, and Utah)

Arrangements with home food delivery contractors provide for the
delivery of supplemental foods directly to participants' homes.

*Retail Food Delivery System* (used by most State agencies)

Negotiable FIs are issued directly to individual participants, who
exchange them for authorized supplemental foods at retail stores
approved as vendors by the State agency. Two types of systems are used
to redeem the FIs: voucher systems and check systems. In a voucher
system, the vendor submits the FIs directly to the State agency for
payment; in a check system, vendors deposit FIs to their bank accounts
and the State reimburses them through their banks. Generally, a
participant must use an FI within 30 days of the first date of use
printed on the FI; and the vendor must submit the FI for payment within
90 days of that date.

Each FI issued to a participant must have a unique serial number. A
State agency is required to determine the ultimate disposition of all
FIs by serial number within 150 days of the first valid date for
participant use. The State agency must adjust previously reported
obligations for WIC food costs in order to account for actual FI
redemptions and other changes in the status of FIs.

**Cost Containment Requirements**

In an effort to use their food funding more efficiently, all WIC State
agencies in the 50 States, the District of Columbia, Puerto Rico, Guam,
the Virgin Islands, American Samoa, and most Indian Tribal State
agencies have implemented cost containment measures. Reducing the
average food cost per person enables WIC to reach more participants with
a given amount of funds. The most successful strategy has been the
negotiation of competitive rebate contracts between State agencies and
infant formula companies. Such contracts provide for the State agency to
receive rebates on infant formula used in the program. Other cost
containment measures used by State agencies include competitive bidding
for juice, infant cereal, and infant juice; selection of retail vendors
based on competitive prices; setting maximum redemption amounts for FIs;
authorizing the use of store or generic brands of supplemental foods;
and using a home delivery or direct distribution food delivery system.

**Federal Oversight and Compliance Mechanisms**

FNS oversees State operations through an organization consisting of
headquarters and seven regional offices. Federal program oversight
encompasses review of the nine functional areas of the program:
Organization and Management; Funding and Participation; Vendor
Management; Information Systems; Certification, Eligibility, and
Coordination; Nutrition Services; Civil Rights; Monitoring and Audits;
and Food Delivery. Each year FNS regional offices evaluate as many of
these areas as possible within available resource constraints, focusing
on those areas they consider most need of review.

Although FNS uses technical assistance extensively to promote
improvements in State operation of the WIC Program, enforcement
mechanisms are also present. The misuse of funds through State or local
agency negligence or fraud may result in the assessment of a claim (7
CFR section 246.23(a)). Claims may be established for funds lost due to
FI theft or embezzlements or for unreconciled FIs (7 CFR sections
246.23(a)(2) and (4)). FNS has other mechanisms to recover other losses
and the cost of negligence. For other forms of noncompliance, FNS has
the authority to give notice and, if improvements do not occur, withhold
administrative funds for failure to implement program requirements (7
CFR section 246.19(a)(2)).

FNS has identified the following circumstances that may indicate
noncompliance with WIC program requirements: (1) redeemed FIs which the
issuing local agencies had reported as voided or unclaimed; (2) a large
number of consecutively numbered, unreconciled FIs issued by the same
local agency; (3) redeemed FIs that appear to have been validly issued
but fail to match issuance records; and, (4) participants that
transacted all of their FIs on the same day as they were issued.

**Source of Governing Requirements**

The WIC Program is authorized by section 17 of the Child Nutrition Act
of 1966 (42 USC 1786). Program regulations are found at 7 CFR part 246.

**Availability of Other Program Information**

For additional information, contact the applicable FNS regional office.
Regional office telephone and datafax numbers, and the States each
regional office serves may be found on FNS's web site
(<http://www.fns.usda.gov/wic>).

**III. COMPLIANCE REQUIREMENTS**

**In developing the audit procedures to test compliance with the
requirements for a Federal program, the auditor should first look to
Part 2, Matrix of Compliance Requirements, to identify which of the 14
types of compliance requirements described in Part 3 are applicable and
then look to Parts 3 and 4 for the details of the requirements.**

**A. Activities Allowed or Unallowed**

1\. *General Rule*

> a\. Funds allocated to a State agency for food must be expended to
> purchase supplemental foods for participants or to redeem FIs issued
> for that purpose. When supplemental foods are provided to participants
> via direct distribution, the related warehouse facilities costs shall
> be allowable food costs. Food funds can also be used to purchase
> breast pumps for participants (7 CFR section 246.14(a) and (b)).
>
> b\. Funds allocated for NSA must be used for the costs incurred by the
> State or local agency to provide participants with nutrition
> education, breast-feeding promotion and support, and referrals to
> other social and medical service providers; and to conduct participant
> certification, caseload management, food benefit delivery, vendor
> management, voter registration, and program management (42 USC
> 1786(h)(1)(C)(ii);\
> 7 CFR sections 246.14(c) and (d)).

2\. *Exceptions*

> a\. Funds allocated for food costs may be converted (be applied to NSA
> costs): (1) as a result of a State's plan to exceed participation
> levels projected by the Federal funding formula; or (2) after recovery
> as vendor or participant collections. Conversion due to planned
> participation increases is allowed only if such increases are expected
> to result from an approved cost containment plan (7 CFR sections
> 246.14(e) and 246.16(f)).
>
> b\. Funds allocated for NSA costs but not needed for such costs may be
> applied to food costs (7 CFR section 246.14(a)(2)).

3\. *Distinguishing WIC from Non-WIC Services*

> Under no circumstances may the WIC NSA grant component be charged for
> costs that are demonstrably outside the scope of the WIC Program. WIC
> services may include: (a) some screening (excluding laboratory tests);
> (b) referrals for other medical/social services, such as
> immunizations, prenatal (before birth) care, perinatal care (near the
> time of birth from the 28th week of pregnancy through 28 days
> following birth), and well child care and/or family planning; and (c)
> follow-up on participants referred for such services. However, the
> cost of the services performed by other health care or social service
> providers to which the participant has been referred shall not be
> charged to the WIC grant. For example, the cost to screen, refer, and
> follow-up on immunizations for WIC participants may be charged to the
> WIC grant, but, the cost to administer the shot, or to purchase the
> vaccine or vaccine-related equipment, may not be charged to the WIC
> grant.
>
> A hematological test for anemia, such as a hemoglobin, hematocrit, or
> free erythrocyte protoporphyrin test, is the only laboratory test
> required to determine a person's eligibility for WIC (7 CFR section
> 246.7(e)(1)). Accordingly, the cost of hematological tests for anemia
> is the only laboratory cost that may be charged to a WIC grant.

**B. Allowable Costs/Cost Principles**

1\. *Applicable Credits*

> The following items are credits against current vendor billings or
> prior expenditures:
>
> a\. *Rebates* - Rebates are credits against prior expenditures for
> food costs, made during the month in which the rebate was earned.
>
> b\. *Vendor Collections* - Post-payment vendor collections are funds
> collected through claims assessed against food vendors for errors and
> overcharges. Pre-payment vendor collections are improper payments
> prevented as a result of reviews of FIs prior to payment; they are
> credits against vendor billings.
>
> c\. *Participant Collections* - These are recoveries of improperly
> issued food benefits as the result of a participant, guardian or
> caretaker intentionally making a false or misleading statement or
> withholding information.
>
> d\. *Local Agency Collections* -- These are funds collected as a
> result of claims assessed against local agencies for program funds
> that were misused or otherwise diverted from program purposes due to
> local agency negligence or fraud.
>
> A State agency must recognize, use, and account for these items in
> accordance with program regulations. At its discretion, the State
> agency may credit vendor, participant, and local agency collections
> against expenditures for food and/or NSA costs. The State agency may
> apply vendor, participant, and local agency collections to food and/or
> NSA expenditures of: (1) the fiscal year in which the initial
> obligation was made; (2) the fiscal year in which the claim arose; (3)
> the fiscal year in which the collection is received; or (4) the fiscal
> year following the fiscal year in which the collection is received (42
> USC 1786(f)(21); 7 CFR section 246.14(e)).

2\. *Capital Expenditures*

> a\. FNS has authorized WIC State and local agencies to charge the full
> acquisition cost of non-computer equipment costing less than \$25,000
> per unit without obtaining prior FNS approval, and to allow local
> agencies under their oversight to do likewise. FNS regional offices
> retain the discretion to apply a lower dollar threshold to an
> individual State agency and to the local agencies under its oversight,
> provided certain requirements apply and the State agency receives
> written notice.

b\. *Automated Data Processing Projects*

> \(1\) FNS authorizes WIC State agencies to make automated data
> processing (ADP) acquisitions with a total project cost of up to
> \$24,999 without prior FNS approval. Instead, WIC State agencies must
> notify the FNS Regional Office in writing of such purchases within 60
> days of the expenditure or contract execution. ADP acquisitions with a
> total project cost of \$25,000 to \$499,999 require a written request
> for prior approval from the FNS Regional Office, including an
> explanation of the purchase(s), description of needs, and other
> information appropriate to the proposed acquisition (cost allocation,
> procurement documents, etc, as appropriate).
>
> \(2\) WIC State agencies are required to submit an Advance Planning
> Document (APD) to request prior approval of automation acquisitions
> with a total project cost of \$500,000 or more. Prior approval from
> FNS is required for such costs to be allowable charges to the WIC
> grant.
>
> c\. *Other Capital Assets -* Purchases of other capital assets, such
> as buildings, land and improvements to buildings or land that
> materially increase their value or useful life, costing more than
> \$5000 continue to require prior approval from FNS (7 CFR section
> 3016.22).

**C. Cash Management**

> The WIC program is subject to the provisions of the Cash Management
> Improvement Act (CMIA). However, rebates held in State accounts are
> exempt from the interest provisions of the CMIA (42 USC 1786(h)(8)(J);
> 7 CFR section 246.15(a)).

**E. Eligibility**

**1. Eligibility for Individuals**

> Applicants for WIC Program benefits are screened at WIC clinic sites
> to determine their WIC eligibility. Except in limited circumstances,
> WIC applicants must be physically present for such screenings and must
> provide proof of identity. To be certified eligible, WIC applicants
> must meet the following eligibility criteria (7 CFR sections 246.7(c),
> (d), (e), (g), and (l)):
>
> a\. *Categorical* - Eligibility is restricted to pregnant, postpartum,
> and breast-feeding women, infants, and children up to their fifth
> birthday (7 CFR sections 246.2 (definition of each category) and
> 246.7(c)).

b.  *Residency* - An applicant must meet the State agency's residency
    requirement. Except in the case of Indian State agencies, the
    applicant must reside in the jurisdiction of the State. Indian State
    agencies may require applicants to reside within their jurisdiction.
    All State agencies may designate service areas for any local agency,
    and may require that applicants reside within the service area. A
    State agency must establish procedures, in accordance with guidance
    from FNS, to prevent the same individual from receiving duplicate
    benefits through participation at more than one local agency. Except
    under limited circumstances, WIC applicants must present proof of
    residency at certification (42 USC 1786(f)(23); 7 CFR sections
    246.7(c)(1)) and 246.7 (l)(2)).

> c\. *Income* - An applicant must meet an income standard established
> by the State agency or be determined to be automatically
> (adjunctively) income-eligible based on documentation of his/her
> eligibility, or certain family members' eligibility, for the following
> Federal programs: (1) Temporary Assistance for Needy Families
> (formerly Aid To Families With Dependent Children); (2) Medicaid; or
> (3) Food Stamps. State agencies may also determine an individual
> automatically income-eligible, based on documentation of his/her
> eligibility for certain State-administered programs. With limited
> exceptions, applicants who are not adjunctively or automatically
> income eligible for WIC must provide documentation of family income at
> their initial or subsequent certification (42 USC 1786(d)(3)(D); 7 CFR
> sections 246.2 (definition of "family"), 246.7(c), and 246.7(d)).
>
> *Income Guidelines* - The income standard established by the State
> agency may be up to 185 percent of the poverty income guidelines
> issued annually by HHS or State or local income guidelines used for
> free and reduced-price health care. However, in using health care
> guidelines, the income guidelines for WIC must be between 100 and 185
> percent of the poverty income guidelines. Local agency income
> guidelines may vary as long as they are based on the guidelines used
> for free and reduced-price health care (7 CFR section 246.7(d)(1)).
> The WIC income eligibility guidelines are issued each year in the
> *Federal Register* and are available on FNS's WIC web site
> (<http://www.fns.usda.gov/wic>).
>
> *Income Eligibility Determination* - Except for applicants determined
> to be automatically income-eligible, income is based on gross income
> and other cash readily available to the family or economic unit.
> Certain Federal payments and benefits are excluded from the
> computation of income. In addition, the State agency may exclude
> housing allowances received by military services personnel residing
> off military installations or in privatized housing, whether on or
> off-base (7 CFR section 246.7(d)(2)(iv)(A)(1)). The State agency also
> may exclude any cost-of-living allowance provided to military
> personnel who are on duty outside the contiguous States of the United
> States (7 CFR section 246.7(d)(2)(iv)(A)(2)).
>
> At a minimum, in-stream (away from home base) migrant farm workers and
> their families with expired Verification of Certification cards shall
> meet the State agency's income standard provided that the income of
> the family is determined at least once every 12 months (7 CFR section
> 246.7(d)(2)(ix)).
>
> An Indian State agency, or a State agency acting on behalf of an
> Indian local agency, may submit reliable data that proves to FNS that
> the majority of Indian households in a local agency service area have
> incomes at or below the State agency's income guidelines. In such
> cases, FNS may authorize the State agency to permit the use of an
> abbreviated income screening process whereby an applicant affirms, in
> writing, that his/her family income is within the State agency's
> prescribed guidelines (7 CFR section 246.7(d)(2)(viii)).
>
> State agencies may instruct local agencies to consider family income
> over the preceding 12 months or the family's current rate of income,
> whichever indicator more accurately reflects the family's income
> status. However, applicants in which an adult member is unemployed
> shall have income determined based on the period of unemployment. A
> State or local agency may require verification of information which it
> determines necessary to confirm income eligibility (7CFR sections
> 246.7(d)(2)(i) and (v)).
>
> d\. *Nutritional Risk* - A competent professional authority (e.g.,
> physician, nutritionist, registered nurse, or other health
> professional) must determine that the applicant is at nutritional
> risk. While the broad guidelines for determining nutritional risk are
> set forth in WIC legislation and regulations, the specific allowable
> nutritional risk criteria are defined in WIC policy guidance, which is
> updated periodically. Each State agency may choose which allowable
> nutritional risk criteria will be used to determine eligibility. At a
> minimum, the certifying agency must perform and/or document
> measurements of each applicant's height or length and weight. In
> addition, a hematological test for anemia must be performed or
> documented at certification if the applicant has no nutritional risk
> factor prescribed by the State agency other than anemia. Certified
> applicants with qualifying nutritional risk factors other than anemia
> must also be tested for anemia within 90 days of the date of
> certification. Program regulations set several exceptions to these
> general rules. The determination of nutritional risk may be based on
> current referral data provided by a competent professional authority
> who is not on the WIC staff (7 CFR sections 246.2 (definitions of
> "competent professional authority" and "nutritional risk") and
> 246.7(e)).
>
> When an applicant meets all eligibility criteria, he/she is determined
> by WIC clinic staff to be eligible for program benefits. Certification
> periods are assigned to each participant based on categorical status
> for women, infants, and children (7 CFR section 246.7(g)).
>
> A WIC local agency assigns each eligible person a priority
> classification according to the classification system described in 7
> CFR section 246.7(e)(4). A person's priority assignment reflects the
> severity of his/her nutritional risk. If the local agency cannot
> immediately place the person on the program for lack of an available
> caseload slot, the person is placed on a waiting list. Caseload
> vacancies are filled from the waiting list in priority classification
> order. State agencies are expected to target program outreach and
> caseload management efforts toward persons at greatest nutritional
> risk (i.e., those in the highest priority classifications).
>
> Pregnant women are certified for the duration of their pregnancy and
> for up to six weeks postpartum. Breast-feeding women may be certified
> for six-month intervals ending with the breast-fed infant's first
> birthday. Infants are certified at intervals of approximately six
> months, except that infants under six months of age may be certified
> for a period extending up to the child's first birthday, provided the
> quality and accessibility of health care services are not diminished.
> Children are certified for six-month intervals ending with the month
> in which the child reaches the fifth birthday. Non-breast-feeding
> women are certified for up to six months postpartum.

**2. Eligibility for Group of Individuals or Area of Service
Delivery** - Not Applicable

**3. Eligibility for Subrecipients**

> A State agency may award WIC subgrants only to organizations meeting
> the regulatory definition of "local agency." Such organizations
> include public or private non-profit health agencies, human service
> agencies that provide health services, IHS health units, and Indian
> tribal groups described in the WIC program regulations (See definition
> of "local agency" in 7 CFR section 246.2.).

**H. Period of Availability of Federal Funds**

> 1\. *Spend-Forward Option -* For WIC formula grants funds awarded
> prior to Federal fiscal year 2004, a State agency may spend NSA funds
> up to an amount equal to one percent of its total WIC formula grant
> for NSA costs of the following Federal fiscal year. For WIC formula
> grant funds awarded for Federal fiscal years 2004 and after, a State
> agency may spend NSA funds up to an amount equal to three percent of
> its total WIC formula grant for NSA costs of the following Federal
> fiscal year. With prior approval from its FNS regional office, the
> State agency may also spend NSA funds in an amount that does not
> exceed one-half of one percent of its total WIC formula grant, for
> management information systems development costs during the following
> Federal fiscal year. Food funds may not be "spent forward" (42 USC
> 1786(i)(3)(A)(ii)(I); 7 CFR section 246.16(b)(3)(ii)).
>
> 2\. *Backspend Option* - A State agency may:
>
> a\. Spend up to one percent of the food component of its grant for
> food costs of the Federal fiscal year preceding the fiscal year for
> which the grant was awarded. This backspend authority may be raised as
> high as three percent with prior approval from FNS.
>
> b\. Spend up to one percent of its NSA grant component for food and/or
> NSA costs of the Federal fiscal year preceding the fiscal year for
> which the grant was awarded (7 CFR section 246.16(b)(3)(i)).

**J. Program Income**

> The State agency may use current year program income for costs
> incurred in the current fiscal year and, with the approval of FNS, for
> costs incurred in previous or subsequent fiscal years. Currently, the
> following are the only funds FNS is aware of that WIC State agencies
> receive that are classified as program income: (1) royalties from
> printed publications; (2) nominal fees, not to exceed costs, for
> reproducing or mailing publications, videotapes, posters, etc.; (3)
> interest earned on rebate funds for infant formula and other foods;
> (4) general grants not tied directly to foods purchased, but made for
> inclusion of food items in a State's food package (such as certain
> grants from the private sector); and (5) money received by the State
> agency as a result of civil money penalties or fines assessed against
> a vendor, and any interest charged in the collection of these
> penalties and fines. A State agency may use program income for any
> combination of food and NSA costs or other costs that further the
> broad objectives of the program (7 CFR section 246.15(b)).

**L. Reporting**

**1. Financial Reporting**

> a\. SF-269, *Financial Status Report* - Not Applicable
>
> b SF-270, *Request for Advance or Reimbursement* - Not Applicable
>
> c\. SF-271, *Outlay Report and Request for Reimbursement for
> Construction Program*s - Not Applicable
>
> d\. SF-272, *Federal Cash Transactions Report* - Not Applicable
>
> e\. FNS-798, *WIC Financial Management and Participation Report (OMB
> No. 0584-0045)* - A State agency is required to submit monthly
> financial and program performance (participation) data (7 CFR section
> 246.25(b)).
>
> Each WIC State agency uses the FNS-798 to report projected and actual
> Federal food expenditures and participation for each month of the
> fiscal year. Participation for any given month equals the number of
> individuals who received supplemental foods or FIs during that month
> plus the number of infants who received no supplemental foods or FIs,
> but were breast-fed by participating women during that month.
>
> WIC State agencies also use the FNS-798 to provide the data FNS needs
> to conduct the annual grant reconciliation and closeout required by 7
> CFR part 3016. The FNS-798 presents the status of the report year
> grant and costs adjusted by the spending options (described under
> III.H, "Period of Availability of Federal Funds"), which allow State
> agencies to shift a small portion of the WIC grant funds between
> Federal fiscal years. The FNS-798 closeout report is the State's
> official declaration of the final status of its grant and costs for
> the report year.

*Key Line Items* - The following line items contain critical
information:

> \(1\) Line 1 *Adjusted Gross Obligations* - reflects the amount of
> money, net of all credits used to fund food outlays except rebates,
> that a State agency estimates it will spend for each month's food
> orders or FI issuances.
>
> \(2\) Line 2 *Estimated Rebates* - reflects the amount of money that a
> State agency estimates it will receive for rebates.
>
> \(3\) Line 7 *Rebates Billed* - reflects the dollar value of bills or
> invoices submitted by the State to food manufacturers, such as infant
> formula companies, for rebate payments.
>
> \(4\) Line 12 *Net Federal Outlays and Unliquidated Obligations* -
> reflects the amount of payments, net of rebates billed, program
> income, post-payment vendor collections, participant collections, and
> other credits. The State's WIC program food cost ledger account should
> support this amount.
>
> \(5\) Line 18 *Total Participation* - reflects the actual number of
> federally supported participants for elapsed months. The participation
> counts should be supported by FI issuance records and participant
> files.
>
> \(6\) Line 26 *Net Federal Outlays and Unliquidated Obligations for
> NSA Costs* - reflects gross outlays and unliquidated obligations minus
> program income, post-payment vendor collections, participant
> collections, and other credits.
>
> f\. FNS-798A, *Addendum to WIC Financial Management and Participation
> Report - NSA Expenditures* *(OMB No. 0584-0045)* - State agencies
> prepare the FNS-798A annually to report: (1) NSA expenditures by
> function for the fiscal year being closed out; (2) the method by which
> NSA expenditures were charged as indirect costs; and (3) the method by
> which the indirect cost amount was determined. FNS uses the amounts
> reported in nutrition education and breast-feeding promotion and
> support, two of the four functional categories on the FNS-798A, to
> determine whether the State agencies met the statutory minimum
> spending level for those functions.
>
> *Key Line Items:*
>
> \(1\) The following line items and columns contain critical
> information for *State-level* activities:
>
> \(a\) Line 5a *Federal Outlays* - Column (03) - *State-Level Nutrition
> Education* - represents total outlays and unliquidated obligations
> made for State-level nutrition education costs supported by Federal
> grant funds and program income.
>
> \(b\) Line 5a *Federal Outlays* - Column (04) - *State-Level
> Breast-feeding Promotion and Support* - represents total outlays and
> unliquidated obligations made for State-level breast-feeding promotion
> and support costs supported by Federal grant funds and program income.
>
> \(c\) Line 5b *State Outlays* - Column (03) - *State-Level Nutrition
> Education* - represents total outlays and unliquidated obligations
> made for State-level nutrition education costs supported by
> State-appropriated funds plus the dollar value of any in-kind
> contributions received from any Federal, State or local funding
> source.
>
> \(d\) Line 5b *State Outlays* - Column (04) - *State-Level
> Breast-feeding Promotion and Support* - represents total outlays and
> unliquidated obligations made for State-level breast-feeding promotion
> and support costs supported by State-appropriated funds plus the
> dollar value of any in-kind contributions received from any Federal,
> State or local funding source.
>
> \(2\) The following line items and columns contain critical
> information for *local-level* activities (Outlays and unliquidated
> obligations made by local agencies or made by the State agency for
> local clinics or other units in local communities that directly
> provide benefits to participants).
>
> \(a\) Line 5a *Federal Outlays -* Column (07) - *Local-Level Nutrition
> Education* - represents total outlays and unliquidated obligations
> made for local-level nutrition education costs supported by Federal
> grant funds and program income.
>
> \(b\) Line 5a *Federal Outlays* - Column (08) - *Local-Level
> Breast-feeding Promotion and Support* - represents total outlays and
> unliquidated obligations made for local-level breast-feeding promotion
> and support costs supported by Federal grant funds and program income.
>
> \(c\) Line 5b *State Outlays* - Column (07) - *Local-Level Nutrition
> Education* -represents total outlays and unliquidated obligations made
> for local-level nutrition education costs supported by
> State-appropriated funds plus the dollar value of any in-kind
> contributions received from any Federal, State or local funding
> source.
>
> \(d\) Line 5b *State Outlays* - Column (08) - *Local-Level
> Breast-feeding Promotion and Support* - represents total outlays and
> unliquidated obligations made for local-level breast-feeding promotion
> and support costs supported by State-appropriated funds plus the
> dollar value of any in-kind contributions received from any Federal,
> State or local funding source.
>
> (Refer to 7 CFR section 246.14(c))
>
> g\. *Subrecipient Reporting* - A State agency may require local
> agencies under its oversight to report financial information the State
> agency needs to prepare reports identified above. These reports should
> be tested during audits of subrecipients.

**2. Performance Reporting** - Not Applicable

**3. Special Reporting** - Not Applicable

**M. Subrecipient Monitoring**

> State agencies must establish an ongoing management evaluation system
> which includes at least the monitoring of local agency operations, the
> review of local agency financial and participation reports, the
> development of corrective action plans, the monitoring of the
> implementation of corrective action plans, and on-site reviews. The
> on-site reviews of local agencies shall include evaluation of
> management, certification, nutrition education, civil rights
> compliance, accountability, financial management systems, and food
> delivery systems. These reviews must be conducted on each local agency
> at least once every two years, including on-site reviews of a minimum
> of 20 percent of the clinics in each local agency or one clinic,
> whichever is greater (7 CFR section 246.19(b)).

**N. Special Tests and Provisions**

**1. Food Instrument Disposition**

> **Compliance Requirement** - A State agency must account for the
> disposition of all FIs within 150 days of the FI's first valid date
> for participant use. The State agency must identify all FIs as either
> issued or voided; and identify issued FIs as either redeemed or
> unredeemed. Redeemed FIs must be identified as one of the following:
> (1) validly issued, (2) lost or stolen, (3) expired, (4) duplicate, or
> (5) not matching valid enrollment and issuance records. State agencies
> generally do this by analyzing computer reports that provide detailed
> issuance and redemption information on each FI (7 CFR section
> 246.12(q)).
>
> **Audit Objective** - Determine whether the State agency's FI
> disposition process complies with the foregoing requirement.

**Suggested Audit Procedures**

> a\. Obtain an understanding of the State agency's process for tracking
> FIs. At a minimum, this includes ascertaining how the State agency:
>
> \(1\) Identifies the ultimate disposition of every FI; and
>
> \(2\) Follows up on redeemed FIs that cannot be matched with valid
> issuances (State agencies do this by contacting the issuing local
> agencies and by other means).
>
> b\. Ascertain whether the State agency provides written guidance to
> local agencies on how to follow up on issued FIs (redeemed and
> unredeemed).

c\. Inspect disposition reports to ascertain that the State agency:

> \(1\) Reconciled its records to issued FIs on a one-to-one basis
> within the 150-day time frame set by regulation;
>
> \(2\) Followed-up on redeemed FIs that were not validly issued and
> validly used, in order to determine their ultimate disposition;
>
> \(3\) Obtained explanations for identified discrepancies; and
>
> \(4\) Adjusted its accounting records and external reports in order to
> reflect the results of the disposition process.
>
> d\. Using State agency disposition reports for one or more months of
> the audit period, verify the State agency's non-reconciliation rate
> for redeemed FIs. The State agency should use the following steps in
> performing the non-reconciliation rate calculation:

\(1\) Determine total FIs redeemed

> \(2\) Determine total redeemed FIs initially identified as
> unreconciled (listed as redeemed with no record of issuance on
> exception report)
>
> \(3\) Determine total redeemed FIs finally identified as unreconciled
> (after follow-up with local agencies/clinics)
>
> \(4\) Calculate the unreconciled rate (#3 divided by #1)
>
> \(5\) Calculate total value of FIs redeemed

\(6\) Calculate total value of FIs finally identified as unreconciled

**2. Review of Food Instruments to Enforce Price Limitations and Detect
Errors**

> **Compliance Requirement** -- A State agency operating a retail food
> delivery system must take the following actions to ensure that
> payments of WIC food funds to vendors conform to program regulations
> and the State agency's vendor agreement:
>
> a\. *FI Review Process* - The State agency must have in place a
> process for reviewing all, or a representative sample of, FIs
> submitted by vendors for redemption. The review is done on an
> aggregate basis rather than on a vendor basis. Because of the wide
> disparity in the number of FIs processed by State agencies, there are
> no criteria for determining what constitutes a representative sample,
> other than that it must be a representative sample of FIs submitted.
> At a minimum, this process must be able to detect:
>
> \(1\) Redeemed monetary amounts that exceed the maximum monetary
> purchase amounts established by the State agency for each type of FI.
>
> \(2\) Other errors, including purchase price missing; participant,
> parent/caretaker, or proxy signature missing; vendor identification
> missing; FIs transacted or redeemed after the specified time period;
> and altered purchase price.
>
> \(3\) Questionable FIs which, while they may not clearly contain
> errors, nevertheless require follow-up to determine if an error has
> occurred.
>
> b\. *Follow-up on Erroneous or Questionable FIs* - The State agency
> must follow up on FIs containing errors and other questionable FIs
> detected through this process within 120 days following detection.
> Regulations at 7 CFR sections 246.12(k)(2) through (k)(5) describe
> appropriate follow-up actions (7 CFR section 246.12(k)).
>
> **[Audit Objective]{.underline} --** To determine whether the State
> agency's system for reviewing FIs detects and follows up on erroneous
> or questionable FIs.

**Suggested Audit Procedures**

> a\. Obtain an understanding of the State agency's process for
> detecting erroneous or questionable FIs.
>
> b\. Review the State agency's reports or other documentation of the
> review process, showing the results for individual FIs during the
> audit period. Select a sample of FIs redeemed that are covered by this
> documentation and analyze it to identify any FIs containing errors. If
> the State agency does not review all FIs, then draw the sample from
> only those FIs the State agency did review. Compare the FIs containing
> errors per the State agency's documentation against the results of
> analyzing the sample in order to determine whether the State agency's
> review process detected all erroneous or questionable FIs.
>
> c\. Determine that the State agency followed up on all FIs for which
> its review process detected errors or questionable items within the
> required 120-day timeframe.**3. Compliance Investigations of High-Risk
> Vendors**
>
> **Compliance Requirement** - A State agency operating a retail food
> delivery system must conduct compliance investigations, which consist
> of inventory audits and/or compliance buys, on a minimum of 5 percent
> of the vendors authorized as of October 1 of each year. A State agency
> must conduct compliance investigations on its high-risk vendors up to
> the 5 percent minimum. High-risk vendors are identified at least once
> annually using criteria developed by FNS, and/or other statistically
> based criteria developed by the State agency and approved by FNS. If
> the number of high-risk vendors exceeds 5 percent of the total, then
> the State agency must prioritize vendors for investigative purposes
> based on their potential for noncompliance and/or loss. If the number
> of high-risk vendors falls short of 5 percent of the total, the State
> agency must randomly select enough additional vendors to meet the 5
> percent requirement. When a compliance investigation discloses vendor
> violations, the State agency must take appropriate action against the
> vendor. Such action includes delaying payment or establishing a claim
> if a violation affects payment to the vendor; imposing sanctions
> mandated by program regulations for certain stated violations; and
> imposing other, less severe sanctions prescribed by the State agency's
> sanction schedule for lesser violations (7 CFR sections 246.2
> (definitions of "compliance buy," "high-risk vendor" and "inventory
> audit"), 246.12(j)(4)(i) through (iii), 246.12(k)(2) through (4), and
> 246.12(l)(1) and (2)).
>
> **Audit Objective** -- Determine whether the State agency made
> required compliance investigations and took appropriate actions
> against vendors.

**Suggested Audit Procedures**

> a\. Inspect the State agency's vendor files or database to identify
> the vendors designated as high risk, and to determine the total number
> of vendors for which compliance investigations were required during
> the audit period.
>
> b\. Inspect records to determine whether the State agency made the
> required compliance investigations and established claims against
> vendors or took other appropriate action based on the findings.