# AGENCY:

 Food and Nutrition Service, USDA.

# ACTION:

 Notice.

# SUMMARY:

 This notice announces pilot projects which would permit selected school food authorities and State agencies to test alternatives to the application procedures and verification process for households participating in the National School Lunch Program. This notice responds to recent data comparisons which suggest that the existing application procedures and verification process do not effectively deter misreporting of eligibility information. The results of these tests will be used in considering revisions to the current application procedures and verification process to reduce the misreporting of eligibility information.

# DATES:

 Applications to conduct a pilot project must be postmarked no later than March 21, 2000.

# FOR FURTHER INFORMATION CONTACT:

 Mr. Matthew Sinn by telephone at (703) 305-2017 to request an application packet or in writing to: Matthew Sinn, Office of Analysis Nutrition and Evaluation, Room 503, 3101 Park Center Drive, Alexandria, Virginia 22302; or electronically at, matthew.sinn@fns.usda.gov.

# SUPPLEMENTARY INFORMATION:

## Is There Additional Information on the Internet?

You can get copies of the complete text of 7 CFR part 210, which covers the NSLP, and 7 CFR part 245, which includes the current application and verification requirements, from the FNS Web site at http://www.fns.usda.gov/​cnd. Access the National School Lunch Program, then Regulations and Policy to find a link to the federal regulations for application and verification requirements.

## What are the Current Free and Reduced Price Meal Application Procedures?

                    Under the National School Lunch Program (NSLP), each school year, school food authorities distribute free and reduced price meal applications to households of enrolled children. Households complete the information required on the application and return it to the school food authority. School food authority officials then determine whether the household is either                     *categorically eligible*                    or                     *income eligible*                    for benefits based on the NSLP's Income Eligibility Guidelines. The information required to determine                     *categorical eligibility*                    are the name of the child, the appropriate food stamp case number, Temporary Assistance for Needy Families (TANF) case number or an equivalent identifier used for the Food Distribution Program on Indian Reservations (FDPIR), and the signature of an adult household member. The information required to determine                     *income eligibility*                    are the names of all household members including the child for whom application is made; the social security number of the adult who signs the application or an indication that the household member does not have a social security number; the current amount of income received by each household member identified by the individual who receives it; and the source of the income, such as wages, welfare, alimony, and the signature of an adult household member.                

As an option to using the above application procedures to establish a child's eligibility, school food authorities have been allowed since 1991 to directly certify children for free meal benefits. School food authorities may certify children eligible for free meal benefits, without further application, by directly communicating with the appropriate State or local agency to obtain documentation that the children are members of food stamp households or members of households certified eligible for TANF or FDPIR. This certification process is referred to as “direct certification.”

## What are the Current Verification Process Requirements?

                    School food authorities must verify the eligibility information on a sample of the free and reduced price applications submitted in any given school year as required in 7 CFR 245.6a. Generally, school food authorities verify a minimum of 3% of the applications which have been approved for free and reduced price meal benefits. Alternatively, a school food authority may verify a smaller sample by focusing on households whose income is within $100 of the annual income eligibility guidelines and selecting a portion of their applications originally approved based on categorical eligibility through participation in the Food Stamp Program, TANF or FDPIR. Households that were directly certified are not required to be verified.                    Start Printed Page 3410

## Why are Changes to the Application Procedures and Verification Process Being Considered?

Over the years, the administering State agencies have conducted comprehensive on-site evaluations of school food authorities participating in the NSLP. The findings indicate that school food authorities have been determining free and reduced price eligibility in accordance with the regulatory requirements. In spite of their efforts, the number of children approved to receive free meals appears to exceed the number of children who are eligible for free meals. The Food and Nutrition Service (hereinafter “we”, “us” or “our”) is attempting to address this disparity.

Recent comparisons of NSLP data with data from the U.S. Bureau of the Census, Current Population Survey (CPS), suggest that the number of children determined eligible for free meals in the NSLP exceeds the number of children that the CPS data identifies as potentially eligible. In fact, in 1997, the number of children approved for free school meals, according to our data, was substantially higher than the number of school-aged children at or below 130 percent of the poverty guidelines (the free meal eligibility guideline), according to CPS data.

This data comparison is consistent with audit survey work by the U.S. Department of Agriculture's (USDA) Office of Inspector General (OIG). The OIG determined that in one state nearly 20% of the households approved for free or reduced price meals were determined to be ineligible as a result of subsequent verification conducted by school food authorities (Food and Nutrition Service National School Lunch Program Verification of Applications in Illinois: Audit Report No. 27010-0011-Ch). In that survey work, OIG reviewed the verification process in 102 school food authorities. Forty one school food authorities reported no changes in household eligibility due to verification. However, in 61 of the 102 school food authorities, the verification process resulted in a termination/reduction rate of 19.05%. The CPS data, the audit survey findings, and other program oversight activity suggest that a substantial number of households misreport eligibility information in order to gain eligibility to free and reduced price meal benefits in the NSLP.

The reasons for misreporting eligibility information may be more complicated than a desire to simply wrongfully secure free and reduced price meal benefits in the NSLP. A number of local, State and Federal programs use free and reduced price approval as a criterion for other benefits. As a result, households may have an added incentive to gain approval for meal benefits in order to obtain other benefits such as free textbooks, reduced athletic or band fees and other related services.

In addition, other State and Federal program funds are often linked to the free and reduced price meal data. For example, a State may distribute all or a portion of its allotment of Federal education funding to schools in proportion to the enrollment of students eligible for free or reduced price meal benefits. These links, in which the number of students eligible for free and reduced price benefits cause a school's funding to increase, may discourage school food authorities from veryifying more applications than the minimum required by current regulations.

## What are the Objectives of the Pilot Projects?

We considered universally increasing the number of applications to be verified by school food authorities as an obvious measure that would likely decrease misreporting of eligibility information. However, we recognize that such an approach may only provide a limited ameliorative effect. Therefore, we decided to test other approaches. The objectives of the pilot projects are to:

1. Explore methods of deterRing misreporting of eligibility information before the application is approved;

2. Explore methods of better detecting the misreporting of eligibility information after the application has been approved; and,

3. Evaluate the cost effectiveness of several methods before changing the regulations in order to help ensure that any future regulatory actions effectively deter and/or detect the misreporting of eligibility information.

## What Criteria Will be Used to Select the Pilot Sites?

Applications to participate in the pilot project must meet the following criteria and conditions, regardless of whether they propose to test one of the alternatives we have designed or propose to design and test their own alternative:

1. Proposals must not include a significant barrier to program eligibility for households that would otherwise be eligible for benefits.

2. Proposals must have some transferability, but universal transferability is not required. For example, a large school food authority may design a system that is cost effective, due to economies of scale, for other larger school food authorities but may be cost prohibitive in smaller school food authorities.

3. Proposals must ensure that children eligible for free and reduced price meals are  not overtly identified (42 U.S.C. 1758(b)(4)).

4. Proposals must ensure that when households meet the NSLP eligibility criteria and requirement(s) of the alternative, they are promptly notified and the children receive  the benefits to which they are entitled. Unless a shorter timeframe is stipulated by the administering State agency, eligibility determinations should be made within 10 working days of receipt of the eligibility information.

## Are There Limits to What can be Tested Through the Pilot Projects?

                    Section 12(l) of the Richard B. Russell National School Lunch Act (NSLA) 42 U.S.C. 1760(l) allows us to grant waivers for many requirements under the NSLA or the Child Nutrition Act of 1966 or regulations issued under either Act. However, under this waiver authority, we may not grant a waiver that increases Federal costs or that relates to: (a) the nutritional content of meals served; (b) Federal reimbursement rates; (c) the provision of free and reduced price meals; (d) limits on the price charged for a reduced price meal; (e) maintenance of effort; (f) equitable participation of children in private schools; (g) distribution of funds to State and local school food authorities and service institutions participating in a program under the NSLA and the Child Nutrition Act of 1966; (h) the disclosure of information relating to students receiving free or reduced price meals and other recipients of benefits; (i) prohibiting the operation of a profit producing program; (j) the sale of competitive foods; (k) the commodity distribution program under section 14 of the NSLA, 42 U.S.C. 1762a; (l) the special supplemental nutrition program authorized under section 17 of the Child Nutrition Act of 1966, 42 U.S.C. 1786; or (m) enforcement of any constitutional or statutory right of an individual including title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973, title IX of the Education Amendments of 1972, the Age Discrimination Act of 1975, the Americans with Disabilities Act of 1990 and the Individuals with Disabilities Education Act. Therefore, we will reject applications that request statutory or regulatory waivers that are not authorized. In addition, we will reject                     Start Printed Page 3411                    applications that are inconsistent with the objectives of these pilot projects.                

## How Long Will the Pilot Project Last?

Pilot sites must conduct an alternative application procedure or verification process for 3 consecutive school years, beginning in school year 2000-2001.

## Who May Apply for a Pilot Project?

School food authorities may apply to test one of the alternatives we have developed (explained later in this notice) or an approvable alternative they have developed to improve the integrity of the application procedures or verification process under the NSLP. School food authorities may be asked to identify a second alternative they would be willing to test in the event that their first choice is not available. In addition, State agencies may apply to test one of the alternatives we have developed or an alternative they have developed to improve the integrity of the application procedures or verification process under the NSLP.

## Do School Food Authorities Need State Agency Approval?

School food authorities applying to test an alternative must obtain the approval of their administering State agency as part of the application process. All applications must be submitted to us by the administering State agency. Applications must be postmarked no later than March 21, 2000.

## How Many Pilot Sites Will Be Selected?

We would like to test the 4 alternatives we have designed, with at least two pilot sites testing each alternative. As a result, we envision a minimum of 8 pilot sites for this purpose. Given cost limitations, no more than 10-12 pilot  sites will be selected, which will allow for school food authority designed alternatives.

## How Many Alternatives May a School Food Authority Test?

In any school food authority, only one alternative may be tested. School food authorities may apply to test one of the alternatives we have designed or apply to test their own alternative. School food authorities do not have to apply to test an alternative in all schools under their jurisdiction, however for applicants that are not single-site school food authorities, we would like the alternative to be tested in more than one school.

## How Will the Effectiveness of Alternative Procedures Be Evaluated?

We designed the alternatives to prevent incorrect receipt of meal benefits either by deterring households from misreporting eligibility information on their application (deterrence measures) or identifying misreporting after it occurs through the verification process (detection measures). Throughout the pilot projects, we will be collecting data to evaluate how well the alternatives deter or detect the misreporting of eligibility information, how much burden the alternatives place on the pilot sites and the cost effectiveness of the alternatives.

## What Are the USDA Designed Alternate Procedures Pilot Sites May Apply to Use?

                    We have identified several possible approaches to deterring and detecting the misreporting of eligibility information in the NSLP. The approaches outlined in this notice are partially based on findings and recommendations from the OIG and other Program assessments by USDA. We have designed four alternatives that we would like to test and have allowed for additional alternatives. The first two alternatives test changes to the application process, the third alternative tests changes to the verification process. The fourth alternatives tests changes to both the application procedures and the verification process. In recognition that interested school food authorities and State agencies may have alternative approaches to the existing application procedures or verification process that would reduce misreporting, we will accept applications for school food authority or State agency designed alternatives. Such proposals must meet the criteria used to select pilot sites, discussed previously, as well as those under “Alternative 5—School food authority/State agency alternative.” The chart below summarizes the alternatives followed by a detailed description of each alternative:                    Start Printed Page 3412

## Alternative 1—Households Confirm Eligibility at the Time of Application

The first alternative would require all households who submit a free and reduced price meal application to provide documents or an acceptable collateral contact which confirm the income or categorical eligibility information listed on their application. No changes would be made for households that were directly certified. This alternative would operate as follows:

                    1.  At the beginning of the school year, the pilot site would notify households that in order to be determined eligible for free or reduced price meal benefits, their free and reduced price meal application must be accompanied by documentation that confirms income or categorical eligibility information listed on their application (                    *e.g.,*                     pay stubs, letter from welfare office) or collateral contact information that allows for confirmation of eligibility. Pilot sites must include information about this requirement in any public notification, including the application materials that are sent to each household.                

2. Children from households that fail to provide documents which confirm the income or categorical eligibility information listed on their application or fail to provide an acceptable collateral contact would not be approved for meal benefits.

                    3. Supporting documents (                    *e.g.,*                     pay stubs, letters from employer, letter from welfare office) must reflect the income or categorical eligibility information current as of the time the application is submitted. In the case of households applying based on categorical eligibility, the supporting documents must confirm “current” eligibility for food stamps, TANF, or the FDPIR programs. For the purposes of this alternative, “current” eligibility means that the household is certified as eligible for food stamps, TANF or FDPIR at the time the household submits an application for                     Start Printed Page 3413                    free and reduced price meal benefits. Households that cannot supply written confirmation must supply a collateral contact from which the pilot site may confirm the eligibility information either orally or in writing.                

4. If the pilot site also conducts direct certification to establish eligibility, no changes would be made to the direct certification process.

5. Verification requirements would be waived since the confirmation of eligibility occurs at the time of application.

## Alternative 2—Third Party School Meal Benefit Determination and Confirmation System

The second alternative would permit pilot sites to contract with a third party to establish a benefit determination and confirmation system. The system would use the current application and/or direct certification procedures and must provide for confirmation of eligibility through methods available to the third party. The third party may be a public entity or private company that has access to information allowing determination or confirmation of eligibility for meal benefits. For example, the local food stamp office could be contracted with to determine eligibility of households. Likewise, a private company may  specialize in conducting wage matching and a pilot site could retain the company to determine eligibility of households and use the company's wage matching process to confirm eligibility at the time of application. Entities contracting with pilot sites to determine eligibility for meal benefits or confirmation of eligibility for meal benefits will be required to assure that information obtained from program participants is maintained in compliance with the confidentiality provisions of Section 9(b)(2)(C)(iii) of the NSLA (42 U.S.C. 1758(b)(2)(C)(iii). 

This benefit determination and confirmation system would, at a minimum, require confirmation of the income or categorical eligibility information listed on the application. Confirmation would be established through wage matching, by asking households to provide supporting documents, through collateral contacts or by other means available to the third party. Prospective pilot sites should be aware that applications for this alternative will only be accepted when the third party provides specialized service related to determining and confirming benefits. Therefore, applications will not be accepted for pilot projects proposing to employ a food service management company for the benefit determination and confirmation system. This alternative would operate as follows:

                    1. At the beginning of the school year, the pilot site or third party would notify households that in order to be determined eligible for free or reduced price meal benefits, the income and categorical eligibility information listed on their free and reduced price meal application must be confirmed at the time of application. Confirmation may be through wage matching, submission of supporting documents or through other means. Pilot sites may require additional information from the household, such as social security numbers, in order to accomplish confirmation of eligibility. Pilot sites must advise households of the procedures and include any notices required by statute (                    *e.g.,*                     Privacy Act).                

2. Households that do not have their eligibility determined through the third party's process must be allowed to provide documentation or collateral contact information that confirms eligibility. For example, a household that does not appear in a wage match database must be allowed to provide documentation or collateral contact information to confirm eligibility.

3. Children from households that fail to provide documents or collateral contact information which confirms the income or categorical eligibility information listed on their application or that fail to have their eligibility confirmed by the third party would not be approved for free and reduced price meal benefits.

4. Supporting documents (e.g., pay stubs, letter from employer, letter from welfare office) must reflect the income or categorical eligibility information current as of the time the application is submitted. In the case of households applying for categorical eligibility, the supporting document must confirm “current” eligibility for food stamps, TANF, or the FDPIR program. For the purposes of this alternative, “current” eligibility means that the household is certified as eligible for food stamps, TANF or FDPIR at the time the household submits an application for free and reduced price meal benefits.

5. If the pilot site also conducts direct certification to establish eligibility, no changes would be made to the direct certification process.

6. Verification requirements would be waived since the confirmation of eligibility occurs at the time of application.

## Alternative 3—Verify Direct Certification

The third alternative would require pilot sites to verify the continued eligibility of all children whose eligibility was established through direct certification. Currently, children may be directly certified for free meal benefits through eligibility in other programs: food stamps, TANF and FDPIR. These programs generally provide a 3 to 4 month certification of eligibility period. Verification of eligibility for those children is not required but households are required to notify school food authority officials if they no longer receive benefits from the program that originally established eligibility for school meals. In the event a household notifies school officials that they are no longer eligible, the school food authority is required to supply a free and reduced price meal application to allow the household to apply based on family size and income. However, if households fail to notify school officials when they are no longer eligible for food stamps, TANF or FDPIR, there is no mechanism to detect this change in benefit status. This alternative would operate as follows:

1. The pilot site would continue to inform households of children directly certified for free meal benefits that they are required to inform the pilot site if eligibility in the certifying program ends. In addition, the pilot site would inform such households that the eligibility of the directly certified children will be subject to verification.

2. By December 15, the pilot site would verify the continued eligibility of all children that were originally approved through the direct certification process for free meal benefits.

3. The verification process must require all households of directly certified children to provide documents confirming current eligibility for free meal benefits or collateral contact information that allows for confirmation. As a procedural alternative to collecting supporting documents or collateral contact information from households that were originally directly certified, pilot sites may run a second direct certification match or “verification match” of such households.

                    4. Households that do not supply documents or collateral contact information to confirm their eligibility would have their benefits for free meals terminated. If a pilot site chose to run a second direct certification match, households that were no longer identified as eligible through the direct                     Start Printed Page 3414                    certification match would have their benefits for free meals terminated. For all households that have benefits terminated, the pilot site would be required to provide a ten day advance notification of the benefit termination prior to the termination of benefits. The notice must advise households of the change in eligibility, the reason for the change, the right to appeal as listed in 7 CFR 245.6a(e) and the right to reapply at any time during the school year.                

5. Households of children that had meal benefits terminated as a result of the direct certification verification would have the opportunity to submit an application for free and reduced price meals, however, documents confirming the information on the application would be required at the time of application.

6. The pilot site would continue to conduct verification as outlined in 7 CFR 245.6a on the household size and income/categorical eligibility applications.

## Alternative 4—Graduated Increase in Verification Sample Size

The fourth alternative would require pilot sites to contract with a third party to verify additional applications through a graduated increase in the sample size when a high percentage of error is disclosed by the original sample. When the third party finds through the standard verification process that a high percentage of verified households have benefits terminated or reduced, additional verification would be conducted by the third party. Pilot sites would expand the sample size when the error rate of the original sample meets or exceeds a target amount of 25%. This alternative would operate as follows:

1. Pilot sites would select an original 3% sample of free and reduced price meal benefit applications through random selection and a third party would conduct the verification process by December 15 as currently outlined in 7 CFR 245.6a;

2. If 25% or more of the households in the original sample have benefits terminated or reduced for any reason, including non-response, the third party would expand the sample size by randomly closing 50% of the remaining applications and verifying their eligibility, making sure not to re-select applications from the original sample.

3. If 25% or more of the households in the second sample have benefits terminated or reduced for any reason, including non-response, the third party would verify all remaining applications.

4. Under this alternative, no changes would be made to the direct certification process.

5. For all households that have benefits terminated, the third party would be required to provide a ten day advance notification of the termination/reduction prior to the actual reduction or termination. The notice must advise households of the change in eligibility, the reason for the change, the right to appeal as listed in 7 CFR 245.6a(e) and the right to reapply at any time during the school year.

6. All households that had benefits terminated or reduced as a result of verification and who wish to apply to meal benefits in the current year or the following year would be required to provide confirmation of eligibility at the time of application.

## Alternative 5—School Food Authority/State Agency Alternative

There are three possibilities for school food authorities or State agencies to test their own alternative. One method is to test a variation of one of the alternatives, 1-4. A second method might be to design a comprehensive benefit determination system that covers multiple Federal, State and local assistance programs, not simply the Child Nutrition Programs. Pilot sites interested in designing a comprehensive benefit system must develop an application for a combination of several Federal, State and local benefits. Such pilot sites would develop the application, notification procedures and procedures for determining eligibility for the benefits covered by the application and apply to test the system. In addition, the comprehensive benefit system must include internal controls to ensure the delivery of benefits to eligible applicants and to deter or detect misreporting of eligibility information. The third method for school food authorities or State agencies is to design another procedure to deter or detect misreporting of eligibility information for school meal benefits and apply to test the alternative.

## What are the Additional Responsibilities for Pilot Sites?

Pilot sites must retain complete and accurate records that allow us to evaluate the cost effectiveness of alternatives and whether the alternatives effectively deter misreporting or correctly detect households that should no longer be receiving benefits. Selected pilot sites must supply us, or our contractor, with requested information and data throughout the course of the pilot project. Pilot sites must also agree to devote appropriate staff time to work with us or the contractor during the three years the pilot projects are in operation.

Specific recordkeeping and reporting requirements will depend on the pilot procedures and extant recordkeeping activities. Pilot sites must agree to send us, upon request, copies of all records related to their pilot project.

## Classification

### Executive Order 12866

This notice has been determined to be not significant and is not subject to review by the Office of Management and Budget under Executive Order 12866.

### Public Law 104-4

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, we generally prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires us to identify  and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule.

This notice contains no Federal mandates (under regulatory provisions of Title II of the UMRA) for State, local, and tribal governments or the private sector of $100 million or more in any one year. Thus, this notice is not subject to the requirements of sections 202 and 205 of the UMRA.

### Regulatory Flexibility Act

This action is not a rule as defined by the Regulatory Flexibility Act (5 U.S.C. 601 through 612) and thus is exempt from the provisions of that Act.

### Executive Order 12372

The National School Lunch Program is listed in the Catalog of Federal Domestic Assistance under No. 10.555. It is subject to the provisions of Executive Order 12372 which requires intergovernmental consultation with State and local officials, (7 CFR Part 3015, Subpart V and final rule related notice at 48 FR 29112, June 24, 1983).

Dated: January 13, 2000.

Samuel Chambers, Jr.,

Administrator.

[FR Doc. 00-1434 Filed 1-20-00; 8:45 am]

BILLING CODE 3410-30-U