[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Rules and Regulations]
[Pages 41752-41780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16775]



[[Page 41751]]

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

Part II





Department of Agriculture





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



Food and Nutrition Service



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



7 CFR Parts 272 and 273



Food Stamp Program: Recipient Claim Establishment and Collection 
Standards; Final Rule

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules 
and Regulations

[[Page 41752]]


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

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 273

[Amdt. No. 389]
RIN 0584-AB88


Food Stamp Program: Recipient Claim Establishment and Collection 
Standards

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: Food stamp recipient claims are established and collected 
against households that receive more benefits than they are entitled to 
receive. At the Food and Nutrition Service, we are revising Food Stamp 
Program regulations that cover food stamp recipient claims. This rule 
aims to improve claims management in the Food Stamp Program while 
providing State agencies with increased flexibility in their efforts to 
increase claims collection. We incorporate into this rule the 
provisions of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 that affect recipient claims. In addition, 
this action is consistent with the President's regulatory reform 
effort.
    The last major revision to the Food Stamp recipient claim 
regulations was in 1983. Recent legislation, technological advances and 
changes in Federal debt management procedures have made many parts 
obsolete.
    This rule accomplishes several specific objectives while updating 
the Food Stamp recipient claims regulations. First, it incorporates 
changes mandated by the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996. Second, the presentation of our policies, 
and, in some cases, the policies themselves are streamlined by this 
rule. Third, this action incorporates Federal debt management 
regulations and statutory revisions into recipient claim management. 
Finally, this rule provides State agencies with additional tools to 
facilitate the establishment, collection and disposition of recipient 
claims.

DATES: Sections 273.18(c)(1)(ii)(B), 273.18(f) and 273.18(g) are 
effective retroactive to August 22, 1996. The remaining amendments of 
this rule are effective and must be implemented no later than August 1, 
2000.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman, Chief, State 
Administration Branch, Program Accountability Division, Food Stamp 
Program, Food and Nutrition Service (FNS), 3101 Park Center Drive, Room 
820, Alexandria, Virginia 22302, telephone (703) 305-2414.

SUPPLEMENTARY INFORMATION:

I. Procedural Matters

Executive Order 12866, Regulatory Planning and Review

    This final rule has been determined to be economically significant 
and was reviewed 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, Public Law 
104-4, (UMRA), 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 UMRA, we must 
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 rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector of $100 million or more in any one 
year. Thus this rule is not subject to the requirements of sections 202 
and 205 of the UMRA.

Executive Order 12372

    The Food Stamp Program (FSP) is listed in the Catalog of Federal 
Domestic Assistance under No. 10.551. For the reasons set forth in the 
final rule in 7 CFR part 3015, Subpart V, and related Notice (48 FR 
29115), this program is excluded from the scope of Executive Order 
12372 that requires intergovernmental consultation with State and local 
officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R. 
Watkins, Under Secretary for Food, Nutrition and Consumer Services, has 
certified that this rule will not have a significant impact on a 
substantial number of small entities.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have a preemptive effect with 
respect to any State or local laws, regulations, or policies that 
conflict with its provisions or that would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Dates'' section of this preamble. Prior to 
any judicial challenge to the provisions of this rule or the 
applications of its provisions, all applicable administrative 
procedures must be exhausted.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have ``federalism implications,'' agencies are 
directed to provide a statement for inclusion in the preamble of the 
regulation describing the agency's considerations in terms of the three 
categories called for under section (6)(a)(B) of Executive Order 13132:
Prior Consultation With State Officials
    Prior to drafting this final rule, we received input from State and 
local agencies at various times. Since the FSP is a State administered, 
federally funded program, our regional offices have informal and formal 
discussions with State and local officials on an ongoing basis 
regarding program implementation and performance. This arrangement 
allows State and local agencies to provide feedback that forms the 
basis for many discretionary decisions in this and other FSP rules. In 
addition, we presented our ideas and received feedback on current and 
future claims policy at various regional, State, and professional 
conferences. Lastly, the comments on the draft rule received from State 
and local officials were carefully considered in the drafting of this 
final rule.
Nature of Concerns and the Need To Issue This Rule
    State and local agencies generally want greater flexibility in 
their management of recipient claims. To maximize efficiency, a State 
agency usually tries to integrate, to the fullest extent possible, its 
food stamp recipient claims process with claims operations for similar 
programs. State and local officials have indicated that imposing 
requirements unique only to food stamp claims hampers this 
consolidation of effort, thereby leading to inefficiencies.
    Extensive prescriptive regulations already exist for food stamp 
recipient

[[Page 41753]]

claims. We must change these regulations to address the concerns of 
State and local officials. Addressing these concerns is a primary 
objective of this rule.
Extent to Which We Meet These Concerns
    We believe that we adequately address the issue of State 
flexibility in this final rule. When discretion is allowed and where 
appropriate, we specifically provide State agencies with the 
opportunity to develop and use their own procedures to manage recipient 
claims. In addition, we are also willing to approve a waiver of any 
discretionary provision in this rule where a State can demonstrate that 
its own procedure would be more effective and efficient, providing such 
a waiver would not result in a material impairment of any statutory or 
regulatory rights of participants or potential participants and would 
otherwise be consistent with the waiver authority set out at 7 CFR 
272.3(c).

Regulatory Impact Analysis

Need for Action
    This action is needed to: (1) Implement changes in food stamp 
recipient claims mandated by the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, Pub. L. 104-193, (PRWORA); (2) 
incorporate Federal debt management regulations and statutory revisions 
into recipient claim management; (3) provide State agencies with 
additional tools for establishing, collecting and disposing of 
recipient claims; and (4) streamline policies and procedures where 
appropriate.
Benefits
    The Federal government and State agencies are the beneficiaries 
from the provisions in this rule. The Federal government will benefit 
from increased recipient claims collections brought about by additional 
collection tools. In addition to the added retention amounts rendered 
through these increased collections, State agencies will also benefit 
by the streamlined requirements and procedures in this rule.
Costs
    The increased collections brought about by this rule will reduce 
Program costs by $392.5 million for the five year period fiscal year 
2001 through fiscal year 2005.

II. Paperwork Reduction Act

    The information collection requirements included in this rule have 
been approved by the Office of Management and Budget (OMB) under OMB 
Nos. 0584-0069, 0584-0446 and 0584-0492.

Reporting and Record Keeping Burdens

FNS-209 Report (OMB No. 0584-0069)
    Claim activity is reported by State agencies on the Status of 
Claims Against Households (FNS-209) report. The OMB approved the 
information collection requirements for completing and submitting the 
FNS-209 report under OMB Control Number 0584-0069. This rule makes some 
changes to the form and reporting requirements. A revised form FNS-209 
and a burden estimate will be submitted to OMB under the currently 
approved OMB Control Number 0584-0069.
Federal Collection Methods for Food Stamp Program Recipient Claims 
(0584-0446)
    The information collection burden for Federal collections of 
recipient claims is covered under OMB Control Number 0584-0446. This 
rule makes some changes to those requirements. An estimate of the 
revised burden associated with this collection has already been 
approved by OMB.
Repayment Demand and Program Disqualification (0584-0492)
    The burden associated with providing notice and demand for payment 
to households has been approved under OMB Control Number 0584-0492. 
This rule does not change this burden.

Recipient Claims and Other Reporting Forms Consolidation and Redesign

    The proposed rule contained a 60-day notice proposing to combine 
and consolidate the FNS-209 with a number of other reports. The purpose 
of this proposal is to reduce the number of reports and data elements 
to be reported.
    We have suspended all work on this project. Other Federal and State 
priorities (especially Year 2000 changes) have taken precedence. In 
addition, postponing this project provides us with an opportunity to 
further assess our data needs and requirements. We will reannounce our 
forms consolidation proposal with a new 60-day notice when appropriate. 
All comments received for the 60-day notice included in the May 28, 
1998, proposed rule will be taken into account at that time.

III. Background

A. General

Purpose of Rule
    This rule creates new standards for establishing and collecting 
food stamp recipient claims. We aim to strike the optimal balance among 
various competing goals including program integrity, fiscal 
accountability, practical claim management, and the rights of 
individuals and households. We believe that this rule achieves this 
goal.
Plain Language Changes
    President Clinton's memorandum of June 1, 1998, requires us to 
write new regulations in plain language. This final rule conforms to 
this requirement. As a result, the formatting and wording used in the 
regulatory text of this rule differs from the format and text in the 
proposed rule. However, unless specifically addressed in the comment 
discussion below, the changes are only in the presentation of the 
material and not to the actual requirements. We believe the result is a 
regulation that is both easier to read and understand.
Overview of Food Stamp Recipient Claims

The claims environment

    Households receiving overpayments or misusing food stamp benefits 
undermine the integrity of the FSP. Individual overpayments are 
relatively small, usually under $500. However, we estimate that, in 
fiscal year 1998, over $1.4 billion in benefits were overpaid in the 
aggregate. The efficient and effective establishment and collection of 
recipient claims to collect these overpayments is essential to program 
integrity. Nearly 720,000 claims were established in fiscal year 1999 
totaling over $307 million.
    Although State agencies administer the FSP and collect 
overpayments, these benefits are federally funded and claims 
established from overpayments are Federal debts. This unique 
arrangement is the reason why we need extensive regulations in this 
area. A strict application of the standard federal collection rules is 
not the best solution for recipient claim debt management. The reason 
for this is two-fold. First, the Food Stamp Act of 1977, 7 U.S.C. 2011-
2032, (FSA), which governs the FSP, contains certain collection 
provisions and household protections that are not included in other 
Federal laws. Second, we must accommodate State agencies in their 
efforts to operate their respective claims operations as efficiently as 
possible. A State agency usually tries to integrate its food stamp 
recipient claims process with claims operations for similar programs 
such as Temporary Assistance for Needy Families (TANF). To accomplish 
this, we need to afford State agencies a certain degree of flexibility 
while maintaining enough

[[Page 41754]]

control to ensure effective claims management.

Claim Types and Establishing Claims

    A recipient claim falls into one of three categories:
    1. Intentional program violation (IPV) claim--This is a claim that 
is established because the overpayment was caused by fraudulent 
activity by the household. State agencies are currently able to retain 
35 percent of what they collect for this type of claim.
    2. Inadvertent household error (IHE) claim--This is a claim that is 
established if the overpayment was caused by the household 
unintentionally violating program rules. State agencies are able to 
retain 20 percent of what they collect for this type of claim. They 
retain a somewhat higher amount, 35 percent, if the collection is 
through unemployment compensation benefit intercept.
    3. Agency error (AE) claim--This is a claim that is established 
because the overpayment was caused by a mistake on the part of the 
State or local agency. State agencies receive no retention for 
collecting this type of claim.
    State agencies establish a claim by documenting the amount and 
reason for the overpayment, and issuing a demand letter to the 
household. Nationwide, claims establishment for fiscal year 1999 
includes:

----------------------------------------------------------------------------------------------------------------
                                       IPV claim           IHE claim           AE claim              Total
----------------------------------------------------------------------------------------------------------------
Established
    Number......................  40,712............  441,941...........  237,298...........  719,951
    Amount......................  $41.1 million.....  $212.8 million....  $53.9 million.....  $307.8 million
Avg. claim established..........  $1,010............  $481..............  $227..............  $427
----------------------------------------------------------------------------------------------------------------

Collecting Claims

    State agencies use various methods to collect claims. The two 
primary methods are allotment reduction and the Federal debt collection 
programs such as the Treasury Offset Program:
    1. Allotment Reduction--This is when the household's benefits are 
reduced each month to collect the claim. Allotment reduction is the 
primary collection method for households that continue to participate 
in the FSP.
    2. Federal Treasury Offset Program (TOP)--State agencies refer 
delinquent claims to TOP. This is the most effective collection method 
for households that no longer participate in the FSP. TOP intercepts 
federal payments that are to be made to individuals. The sources for 
these offsets vary but currently they are primarily from Federal income 
tax refunds and Federal salaries.
    3. Other Methods--These include, but are not limited to, lump sum 
and installment payments, wage garnishments, unemployment compensation 
benefit intercepts, and state income tax refund and lottery winnings.
    This is a breakout by the method of collection for fiscal year 
1999:

----------------------------------------------------------------------------------------------------------------
                                       Allotment
                                       reduction              TOP            Other methods           Total
----------------------------------------------------------------------------------------------------------------
Amount collected................  $83.6 million.....  $85.1 million.....  $44.3 million.....  $213.0 million
----------------------------------------------------------------------------------------------------------------

    Of these amounts collected, State agencies retained about $22.7 
million for IPV collections and about $22.0 million for collecting IHE 
claims.

Welfare Reform

    PRWORA amended the FSA in a number of ways. This rule implements 
the provisions of PRWORA relating to recipient claims. The specific 
provisions were originally addressed in the proposed rule. We received 
comments on the implementation of a number of these provisions and 
these comments are addressed in the following section of this preamble.

B. Comment Discussion

Publication of Proposed Rule and Comments
    We published the proposed rule, Food Stamp Recipient Claim 
Establishment and Collection Standards, on May 28, 1998, at 63 FR 
29303. A total of 96 comment letters were received on this rule. The 
letters were from 5 recipient interest groups, 3 governmental 
associations, 40 State agencies, 46 local agencies (43 from 1 State), 
and 2 non-FNS Federal agencies. The responses contained 494 separate 
comments. We thank you for your comments and interest. The final rule 
is a better rule because of your recommendations. We separated the 
comments by category and discuss them below.
Recipient Claims as Federal Debts
    Food Stamp recipient claims are State-administered Federal claims. 
We included in the proposed rule that these debts are subject only to 
this and other federal regulations governing Federal debts. We received 
one comment on this provision in the proposed rule:

Does this new language in the rule restrict a State agency's ability to 
manage claims?

    One State agency was concerned that the language specifying that 
recipient claims are Federal debts is too strong and restricts State 
agencies from performing claims establishment and collection more 
efficiently. It is a legal fact that these claims are Federal debt and, 
as such, they are subject to certain requirements. However, State 
agencies may benefit from this Federal claim status. For example, our 
intention with this provision is to make clear that food stamp 
recipient claims are included in many of the collection authorities and 
methods available for other Federal claims. We do not intend to stifle 
State agency flexibility. To make this clear, we will revise the 
provision by removing the word ``only'' to allow this flexibility. (See 
Sec. 273.18(a)(i)(2)). We also want to remind State agencies that 
waivers to these regulations are available and may be requested. We 
will readily approve waivers that serve the best interest of the FSP by 
increasing efficiency and effectiveness in claims management. Of 
course, we cannot approve requests that compromise the statutory or 
regulatory rights of households or are specifically prohibited by the 
FSA.
Intentional Program Violations
    An intentional Program violation (IPV) exists when a person is 
found to have intentionally violated program rules. A different section 
of our regulations (7 CFR 273.16) covers how IPVs are determined. We 
call any resulting claim an IPV claim. In the

[[Page 41755]]

proposed rule, a claim is handled as an IPV claim if one of the 
following occurs:
    (1) A court determines that a household member committed an IPV;
    (2) A household member is determined at an administrative 
disqualification hearing (ADH) to have committed an IPV;
    (3) A household member signs a disqualification consent agreement 
for a suspected IPV referred for prosecution; or
    (4) A household member signs a waiver of his/her right to an ADH.
    One change that we made in the proposed rule (Sec. 273.18(c) at 63 
FR 29325) is to make it optional for State agencies to establish a 
suspected IPV claim as an inadvertent household error (IHE) claim. We 
made this proposal to increase flexibility in this area.
    The public submitted several comments on IPV claims:

Should we provide additional criteria to determine what claims should 
be pursued as IPV claims?

    One State agency commented that we should provide additional 
criteria to determine what other occurrences could be pursued as IPV 
claims. Another State agency recommended that we recognize hearing 
formats unique to a particular State agency as acceptable for 
determining an IPV and the resulting IPV claim.
    These comments have merit. However, the recommendations deal more 
with IPV determinations rather than establishing IPV claims. An IPV 
claim comes from an IPV. It is the finding of IPV itself that 
determines whether the claim should be pursued as an IPV claim. To come 
up with additional criteria, we need to address IPV pursuit and 
determination rather than IPV claim determination. The requirements for 
actual pursuit and determination of IPVs are not addressed in the 
proposed rule or in the regulations affected by this rule. Therefore, 
we will defer these comments until we propose changes to the section of 
our regulations (7 CFR 273.16) that covers IPV pursuit and 
determination.

Do we need to add an additional method for determining an IPV?

    One State agency recommended that we add an additional method for 
determining an IPV and the resulting IPV claim. The State agency 
requested that a claim be considered an IPV when a client enters into a 
plea bargain or similar negotiations to avoid being adjudicated as 
guilty, but agrees to pay the debt without admitting guilt.
    This situation is already included as an IPV in our current 
regulations. State agencies already have the ability to use methods 
described by the commenter to determine IPVs and establish IPV claims 
under the paragraph on deferred adjudication at 7 CFR 273.16(h) in our 
current regulations. Therefore, an additional method for IPV 
determination is not necessary.

Should we have a sub-category for a suspected IPV?

    Instead of providing the option to establish a pending IPV claim as 
an IHE claim, one State agency recommended that we create a separate 
sub-category for pending IPV claims. The State agency believes that 
this would alleviate problems associated with establishing a claim 
prior to prosecution. The State agency's point is valid and the 
suggestion is good. However, we decided to take a different approach to 
resolve issues relating to the claim referral and establishment 
process. As a result, the final rule does not include many of the claim 
management requirements found in the proposed rule. In the final rule 
at Sec. 273.18(d), State agencies may develop their own claim 
management plan to deal with suspected IPVs (as well as other issues). 
The Claim Referral and Establishment section of this preamble provides 
a more detailed discussion of this matter.

Why not retain the personal contact requirement when an IPV is 
established?

    Our current policy at 7 CFR 273.18(d)(2) states that, if possible, 
a personal contact shall be made with the household when beginning 
collection action on an IPV claim. We eliminated this requirement in 
the proposed rule. Two recipient interest groups believe that we should 
retain this requirement. The commenters believe that this rule is 
beneficial to households by insuring that recipients have time to plan 
for imminent collection activity, and reduce the likelihood that such 
collection activity is taken in error.
    We disagree with the commenters' assertion that this provision 
provides added benefits to the household. The household affected by an 
IPV claim has ample opportunity during the hearing and demand letter 
process to discuss the overpayment as well as future collection action. 
The retention of this provision is not necessary and therefore is not 
included in the final rule.
Calculating the Amount of the Claim
    The proposed rule goes into detail on how to calculate a claim 
caused by an overpayment. The final rule at Sec. 273.18(c) provides 
this information in a user-friendly table. We received several comments 
on calculating claim amounts:

Should any underpayments be applied to reduce an overpayment when 
determining the amount of a claim?

    One recipient interest group recommended that all household 
circumstances should be included when establishing a claim. This 
includes applying any underpayment occurring because of the change in 
household circumstances against the overissuance with the difference 
being the claim. The commenter further believes that fairness dictates 
that this should be done even for periods beyond those for which an 
underpayment can be restored. The limit for the restoration of benefits 
is currently one year prior to when the State agency discovers the 
underpayment.
    We believe that the proposed and final rule adequately cover this 
situation. When a claim is calculated, the State agency determines the 
correct amount of food stamp benefits for the months in question. This 
covers circumstances directly relating to the cause of the claim that 
cause underpayments as well as overpayments. For example, assume an 
additional household member with earned income joins the household. In 
this case, the additional income would cause an overpayment. 
Conversely, an additional household member with no income would cause 
an underpayment. The additional income would be offset (to some extent) 
by the larger household size in determining the amount of the claim. 
For periods in which there are net monthly underpayments, they may be 
offset against any resulting claim.
    The only situation that is not covered by the final rule is when 
the underpayment happened more than one year before the State agency 
learned about it. In this instance, the State agency may not use the 
underpayment to offset an overpayment when calculating a claim. While 
we recognize that this may not appear fair to the household, this is 
the law. Section 11(e)(11) of the FSA (7 U.S.C. 2020(e)(11)) does not 
allow restoring benefits that are greater than one year old.
    We want to make one final point regarding claims calculation. When 
calculating a claim, a State agency is expected to only use new data 
that it becomes aware of due to circumstances regarding the claim. A 
State agency is not required to re-verify all factors pertaining to the 
household.

[[Page 41756]]

Why are we not allowing the earned income deduction when calculating 
IHE claims?

    We proposed to not allow the 20 percent earned income deduction to 
that part of any earned income that the household failed to report 
timely. One State agency objected to this proposed policy change. The 
commenter argued that, since the household inadvertently made the 
mistake, we should not further penalize the household. The State agency 
also argued that our proposal would conflict with its TANF policy. 
While the commenter does make some valid points, we have no choice in 
this matter. This rule change is set by legislation. Section 809 of the 
PRWORA, by amending section 5 of the FSA (7 U.S.C. 2014), specifically 
prohibits the inclusion of the 20 percent earned income deduction for 
these types of claims. As a result, this provision remains as proposed 
in the final rule. (See Sec. 273.18(c)(1)(ii)).
Claims for Recipient Trafficking
    The proposed rule would provide State agencies with the authority 
to establish recipient claims for trafficking. The public submitted 41 
comments on this proposal. State and local agencies generally supported 
this proposal with some agencies expressing minor concerns or 
requesting clarifications. However, several recipient interest groups, 
along with a few State agencies, questioned the legality as well as the 
propriety of this proposal.

Are trafficking claims legal and appropriate?

    Five commenters disagreed with our assertion in the proposed rule 
that the FSA allows us to authorize State agencies to establish claims 
for trafficking. The commenters contend that the FSA only provides for 
claims due to an actual overpayment and that we have no authority to 
develop new principles for when a debt is owed. We concur with the 
commenters that, generally, an overpayment occurs when a household 
receives more benefits than the household is entitled to receive. 
However, we still believe that we are able to extend claim 
establishment authority to instances of trafficking and benefit misuse. 
Section 13(a)(1) of the FSA (7 U.S.C. 2022(a)(1)) allows us to provide 
State agencies with `` * * * the power to determine the amount of * * * 
any claim * * * including, but not limited to, claims arising from * * 
* overissuances to recipients * * * (emphasis added).'' The ``not 
limited to'' language shows that Congress did not intend to 
specifically limit this authority to overpayments caused by 
certification and issuance errors. Moreover, Congress directed us to 
issue such regulations as are necessary or appropriate for the 
effective and efficient administration of the FSP so long as the 
regulations are consistent with the FSA, 7 U.S.C. 20139(c). Since the 
misuse of FSP benefits is clearly inconsistent with the purposes of the 
Program, and the establishment of claims can deter the misuse of 
benefits and allow for recovery of such benefits, we believe the 
establishment of claims for trafficking against recipients is within 
our authority. Considering this, our proposed provision is authorized 
by the FSA and therefore remains in this final rule.

Why are all household members, and not just the trafficker, responsible 
for paying a trafficking claim?

    The proposed policy states that all adult household members are 
jointly and separately responsible for the payment of claims. One 
commenter remarked that only the trafficker should be responsible for a 
trafficking claim rather than all adult household members. The 
commenter points out that each adult in a household cannot reasonably 
be expected to be present or even aware each time someone in the 
household transacts the benefits. Therefore, according to the 
commenter, a responsible adult household member would often have no 
means of being aware of, much less preventing, the trafficking. While 
this is a valid point in some cases, we believe that, in most 
instances, responsible household members are able to control the use of 
their benefits. First, when the State agency initially issues the 
electronic benefits transfer (EBT) card, a household undergoes an 
orientation or receives written training materials on the proper uses 
of the card. Second, we have no reason to believe that responsible 
household members are not savvy enough to recognize when the benefits 
are not properly being used. Finally, EBT cards contain personal 
identification numbers to specifically limit who has access to 
benefits. For these reasons, we believe that it is appropriate to hold 
all adult household members jointly and severally liable for a 
trafficking claim.

Should a State agency set up a claim against the household when a 
household member did not conduct the improper transaction?

    Two commenters assert that trafficking claims may be inappropriate 
because EBT transaction printouts (that form the basis for most of the 
EBT-related claims) do not identify who actually used the EBT card in 
the improper transaction. As an example, the commenters state that a 
disabled or temporarily incapacitated person may ask a friend, 
neighbor, or family member to purchase food. The disabled person would 
have no way of controlling what these ``helpers'' do with the benefits. 
In general, recipients are responsible for preventing benefit misuse by 
others. However, we agree with the commenters that these instances may 
in fact occur. Where good cause, such as the household being taken 
advantage of by an authorized representative, can be established then 
there should be no trafficking claim. The State agency may then, with 
the household's assistance, pursue the trafficking violation against 
the individual who inappropriately used the household's benefits. (See 
Sec. 273.18(a)(4)(iii).)

Shouldn't this proposal be used only for more serious forms of 
trafficking?

    One State agency commented that the proposal is too severe and it 
should only be used for some instances of trafficking. The commenter 
continues by stating that an otherwise responsible household may try to 
redeem benefits for other than food items due to some emergency. While 
we recognize that some forms of trafficking may be less objectionable 
than others, we still must disagree with this comment. With rare 
exception, the FSA (7 U.S.C. 2013(a)) and longstanding policy is clear 
in not allowing FSP benefits to be used for anything other than food. 
Compromising on this policy in this instance would undermine the basis 
for the FSP itself.

How will this proposal deter trafficking?

    One recipient interest group commented that implementing this 
proposal is unlikely to deter future traffickers. The commenter's 
reasoning is that the increase in the penalty that this rule would make 
is quite small in comparison to the other penalties that already exist 
for trafficking. Existing penalties include program disqualification 
and, for more grievous offenses, fines and imprisonment. According to 
the commenter, adding this relatively small penalty with these larger 
penalties already in place, will have no effect to deter future 
trafficking. We would first point out that the proposal was not 
intended to establish a penalty but to authorize claims to recover the 
value of misused benefits, which could also have a deterrent effect. 
While we are unable to estimate the magnitude of this deterrent effect, 
at a minimum, authorizing claims for

[[Page 41757]]

trafficking allows us to recover misused FSP benefits. Furthermore, our 
proposal is an integral part of a comprehensive effort to deter 
trafficking and, as such, this approach, including all of the 
applicable penalties, must be looked upon in its entirety. For this 
reason, the proposal will remain in the final rule.

Why establish a recipient claim when the retailer, rather than the 
household, ``profits'' from a trafficking transaction?

    One State agency strongly objected to this proposal because it 
believes that it is the retailer, and not the recipient, that profits 
from a trafficking transaction. The retailer profits by providing cash 
at a discounted rate (usually 50-60 percent) for benefits. As a result, 
the household almost certainly realizes a reduced value from the 
benefits. The commenter believes that, since the transaction benefits 
the retailer, it is the retailer, rather than the household that should 
bear more of the burden for this responsibility.
    Trafficking requires both a retailer and a recipient. Severe 
penalties are already in place for retailers and we are constantly 
looking for ways, both legislatively and administratively, to further 
strengthen our efforts against irresponsible retailers. Until now, 
program disqualifications have been the only recourse against 
recipients who traffick. We believe that this is not enough. 
Authorizing State agencies to establish a claim against recipient 
traffickers provides an additional disincentive for those recipients 
who do, in fact, traffick.
    We also disagree with the commenter's contention that State 
agencies should not additionally punish recipients because they are not 
``profiting'' from trafficking transactions. We concur with the 
commenter that a trafficking household is making an unprofitable 
transaction from a purely financial point of view. However, whether the 
trafficking household actually ``profits'' should not be an issue. 
Fraud and abuse that threatens program integrity is the basis for this 
provision. Evidently, in their view, recipients profit from these 
transactions since it provides them with additional cash or material 
goods.

Can collections be made against both the retailer and the household for 
the same amount trafficked?

    In the preamble to the proposed rule (63 FR 29307) we addressed the 
fact that there is no correlation between retailer fines and recipient 
trafficking claims. Retailer fines provide for monetary penalties 
significantly larger than the amount trafficked. In these instances 
both the retailer fine and recipient claim can be independently 
collected with no coordination necessary between the two categories of 
debt. However, in addition to these larger penalties, we are moving 
towards administratively establishing claims against retailers for the 
amount trafficked. Since both this action and recipient trafficking 
claims directly correspond to the amount trafficked, we must take into 
account the False Claims Act (31 U.S.C. 3729-3731). The False Claim Act 
(31 U.S.C. 3729-3731) does not allow a collection to exceed the total 
amount lost. We are currently looking at ways to make it 
administratively feasible to collect from both the recipient and the 
retailer while ensuring that total collections will not exceed total 
amount lost. For the purposes of this rule, however, no change is 
necessary.

Can this provision result in a household actually owing more than the 
household is issued?

    Two commenters stated that this proposal may result in households 
owing more benefits than were actually issued. This would occur when a 
household receives an overissuance and then trafficks those benefits. 
In this scenario, the household would essentially repay double the 
original benefit issued. We agree with the commenter that this is 
possible. However, we do not believe that this warrants not allowing 
recipient trafficking claims in these instances. Trafficking is 
independent of the issuance or certification process and therefore any 
corresponding claims assessed by the State agency are unrelated. In 
addition, we have a longstanding policy that an individual may receive 
more than one IPV for violating two or more unrelated program rules 
(such as change reporting and trafficking) during the same time period. 
This same policy is being extended to recipient trafficking claims.

Is this proposal considered an unfunded mandate and will additional 
funding be made available?

    We received seven comments on the added workload imposed by this 
proposal and whether additional funding or training will be made 
available. Three commenters consider this proposal an unfunded mandate. 
Two commenters added that the pursuit of traffickers should be solely a 
federal responsibility.
    The purpose of this proposal is to supplement our existing policy 
regarding the pursuit of recipient trafficking. State agencies have 
always been required to pursue any IPV, including recipient 
trafficking. This is not new policy and this rule is not introducing 
new policy regarding additional IPV pursuit. Therefore, this is not an 
unfunded mandate. The purpose of this proposal is simply to authorize 
State agencies to establish claims against traffickers that are already 
being pursued. In many of these instances, the amount trafficked has 
already been determined. As such, the added costs to establish these 
claims are minimal.
    Establishing claims for trafficking allows State agencies to 
recover more of the costs associated with the pursuit of fraud. 
Currently, when a State agency pursues an IPV against a trafficker, the 
agency receives nothing more than the normal administrative match. 
Pursuing claims against these traffickers allows the State agency to 
retain 35 percent of collections for IPVs with minimal additional 
establishment costs.
    As discussed above, the pursuit, prosecution and determination of 
IPV against recipients who traffic is not new policy. However, we do 
recognize that, with the advent of EBT (that provides States with the 
ability to identify potential traffickers), this is a relatively new 
area for some State agencies. We also recognize that, since this is a 
new area, some State agencies may be pressed to allocate additional 
resources. Because of these concerns, we are taking the opportunity in 
this preamble to address this issue. Obviously, State agencies are not 
expected to ``catch'' and subsequently pursue every single questionable 
EBT transaction. However, State agencies are to pursue potential 
recipient trafficking incidents referred by us. In addition, while a 
State may pursue any other trafficking offense, State agencies should 
prioritize their efforts and concentrate on those trafficking incidents 
that are more egregious. These include those of a repeated nature that 
contain high dollar amounts. In addition, States should also 
concentrate their efforts on incidents that include trafficking for 
controlled substances, firearms and similar. States agencies are 
encouraged to set pursuit and prosecutorial standards and dollar 
thresholds to ensure that their recipient trafficking program is 
targeted towards these areas. This will result in enhanced program 
integrity as well as a recipient trafficking pursuit process that is 
both effective and efficient.

What is considered trafficking?

    Three commenters requested clarification on what specifically is 
considered trafficking. To accommodate this request, we will cross 
reference the text in this final rule at Sec. 273.18(a)(1)(ii)

[[Page 41758]]

with our standard definition found in 7 CFR 271.2 of our regulations.

How should we, as State agencies, calculate trafficking claims?

    The proposed rule stated that the amount of a trafficking claim 
would be the value of the trafficked benefits as determined by the 
individual's admission, adjudication, or the documentation that forms 
the basis for the trafficking determination.
    One State agency asked whether the claim would be the amount of 
food stamp benefits that the client expended in the trafficking 
transaction or the amount of cash the individual realized as a result 
of the trafficking transaction. The claim would always be for the 
amount of the food stamp benefits since that was the amount of benefits 
lost because of the illegal transaction.

Are EBT documentation records sufficient for determining the amount of 
the claim?

    We received one comment stating that EBT transaction records are 
not sufficient to determine the amount of the claim. In addition, two 
State agencies commented that, since many times we alert the State 
agency of the trafficking offense, we should also develop the 
information to document the fact of trafficking and the claim amount. 
We disagree that this is a Federal responsibility. Although, at times, 
we will provide State agencies a good deal of information on specific 
recipient trafficking incidents, several State agencies have pointed 
out in comments and at public forums that EBT transaction documentation 
is a clear indicator of the amount trafficked. These agencies further 
emphasize that they can easily convert these amounts into the 
corresponding claim. We are always willing to provide technical 
assistance upon request to State agencies in this area.

Should we have an inadvertent benefit misuse (Non-IPV trafficking) 
claim?

    The proposed rule includes a provision that allows State agencies 
to establish ``inadvertent'' benefit misuse claims against households. 
State agencies may use this authority in trafficking situations that do 
not warrant IPV determinations. Three commenters requested more 
clarification and guidance for this proposal. One commenter disagreed 
with this proposal and contended that any misuse of benefits is 
intentional.
    The provision was originally proposed to maximize State agency 
flexibility in this area. However, upon further examination, we do not 
believe that it is appropriate for State agencies to establish a 
benefit misuse claim against those households that have not been found 
to have trafficked. Our purpose in authorizing this type of claim is to 
deter trafficking. Allowing ``inadvertent benefit misuse'' claims for 
unintentional offenses does little to contribute to this goal. 
Therefore, the final rule does not authorize a State agency to 
establish a benefit misuse or trafficking claim against a household 
unless there is an actual determination of IPV. (See Sec. 273.18(a)).
Claim Referral and Establishment
    We proposed many changes to improve the management and 
establishment of claim referrals. A claim referral is the 
identification of a potential overpayment that needs to be investigated 
and established as a claim. The current regulations provide no guidance 
on managing suspected overpayments and claim referrals. As a result, 
some State agencies were either not establishing claims or they were 
not developing or enforcing internal time frames, thereby causing a 
backlog of claim referrals. When a backlog exists, claims are not 
timely established. Claims that are established timely stand a better 
chance of being collected.
    To address this situation, we proposed standards for claim 
establishment. The proposed standards included the following:
    (1) Defining the discovery and establishment dates for claims;
    (2) Requiring the tracking of claim referrals;
    (3) Establishing the end of the quarter following the quarter of 
discovery as the time frame for claim establishment; and
    (4) Defining that a backlog exists when over 10 percent of 
referrals do not meet the establishment time frame.
    We received 129 comments from 77 commenters on this proposal. Only 
four comments supported some aspect of our proposal. The remaining 125 
comments generally indicated that we are interfering too much with 
State-specific processes. These processes are unique and cross program 
and organizational boundaries. Changing these procedures and processes 
to conform to our specific rules would cause inefficiencies within 
State agencies that would be contrary to the spirit of this rule.
    Our primary purpose in proposing these changes was to improve claim 
referral management. However, the comments received clearly show that 
flexibility is needed in this area. Therefore, in the final rule, we 
include an optional provision to improve claim referral management that 
addresses this need for flexibility. This new procedure reflects the 
collective view of the comments that State agencies can better manage 
claim referrals if States have latitude to tailor the management of 
claims establishment and collection to local situations.
    The final rule retains the proposed standard for establishing 
claims. However, in lieu of using this standard, we are allowing State 
agencies to develop and follow their own standards and procedures 
subject to our approval (see Sec. 273.18(d)). At a minimum, this 
procedure, known as a State claim referral management plan, must 
include the following:

State Claim Referral Management Plan Minimum Requirements

    (1) Justification as to why your standards and procedures will be 
more efficient and effective than our claim referral standard.
    (2) Procedures for the detection and referral of potential 
overpayments or trafficking violations.
    (3) Time frames and procedures for tracking regular claim referrals 
through date of discovery to date of establishment.
    (4) A description of the process to ensure that these time frames 
will be met.
    (5) Any special procedures and time frames for IPV claim referrals.
    (6) A procedure to track and follow-up on IPV claim referrals when 
they are referred for prosecutorial or similar action.
    This plan will be subject to our approval. We will approve any plan 
that demonstrates that procedures are in place to ensure that claim 
referrals are acted on in an effective and efficient manner. In 
addition, we will provide assistance to those State agencies who need 
help in developing a plan. A State agency will maintain maximum 
flexibility in this area, provided it is following its plan and 
managing claim referrals efficiently. We do reserve the right, however, 
to step in and impose requirements as part of a corrective action plan 
if a State agency is not performing this function in an efficient and 
effective manner.
    Our goal, as described above, is to ensure efficient and effective 
claims referral management while maximizing State agency flexibility. 
Allowing State agencies to develop their own plan maximizes this 
flexibility. However, we need to ensure that the State agency's plan 
results in overall effective and efficient claims management. For this, 
we believe the best measure is claims collections. A high rate of 
collection is indicative of a high level of efficiency and 
effectiveness throughout the claims

[[Page 41759]]

process. We will therefore assess State agencies performance by 
comparing collections with overpayment rates in a State. State agencies 
whose collections are low compared to past and current national levels 
will be required to develop a corrective action plan to address any 
deficiencies. (See Sec. 273.18(a)(3)).
Claims Threshold and Cost-Effectiveness Policy
    A claims threshold is the overpayment dollar amount under which 
State agencies do not need to pursue a particular overpayment. We 
currently have a $35 claims threshold. This current threshold applies 
only to non-participating households with non-IPV overpayments. We 
proposed many changes in the May 28, 1998 rule:

Proposed Threshold and Cost-Effectiveness Determination Policy for State
                                Agencies
------------------------------------------------------------------------
 
------------------------------------------------------------------------
           You May Follow Your Own Cost Effectiveness Plan and
------------------------------------------------------------------------
opt not to establish any       Unless . . .         or . . .
 claim if . . .
 
you determine that the claim  you do not have a     you have already
 referral is not cost          cost-effectiveness    established the
 effective to pursue.          plan approved by us.  claim.
------------------------------------------------------------------------
                 Or You May Follow the FNS Threshold and
------------------------------------------------------------------------
opt not to establish any      Unless . . .          or . . .
 claim if . . .
 
You determine that the claim  the household is      you have already
 referral is $125 or less.     participating in      established the
                               the FSP.              claim.
------------------------------------------------------------------------

    We received 24 comments on this comprehensive proposal. Seven 
commenters specifically supported our proposal to allow State agencies 
to develop and use their own cost-effectiveness plan. We derived the 
following questions from the other comments:

Why not retain the original $35 FNS threshold for IHE claim referrals?

    One State agency supported retaining the old $35 threshold for IHE 
claim referrals. As discussed in the proposed rule (63 FR 29308), we 
believe that the $35 benchmark is outdated and does not accurately 
reflect State establishment and collection costs. We continue to 
believe that the $35 benchmark needs to be updated. We are therefore 
retaining the proposed $125 threshold amount in the final rule. (See 
Sec. 273.18(e)(2).) However, the use of this maximum threshold is 
optional. The final rule does not prevent any State agency from 
establishing any claim for an amount lower than the $125 threshold. In 
other words, the State agency submitting this comment is free to 
establish any claim, regardless of the amount.

Why do we extend the FNS threshold to include IPV claim referrals?

    The proposed threshold included IPV referrals. Three commenters 
believe that the threshold should not include IPV referrals. They 
believe that it is inappropriate because the overissuance is caused by 
an individual intentionally breaking program rules. The severity of the 
offense, according to the commenters, dictates that a claim be 
established and pursued.
    We recognize the commenters' concerns. However, we still believe 
that this policy should remain a State agency option. The goal of this 
rule is to maximize flexibility. Even though the overpayment was 
intentional, there may be instances in which it is in the best interest 
of the FSP for a State agency not to pursue the resulting IPV claim 
because of the relatively low dollar amount. This final rule retains 
this flexibility. (See Sec. 273.18(e)(2).)

Should participating households be excluded from the FNS threshold?

    The proposed rule excludes participating households from the 
threshold. The reasoning behind this is that these claims may be 
recovered by reducing the household's allotment. Six commenters believe 
this exclusion is unfair and impractical. It is unfair, according to 
the commenters, because the poorest households, those still 
participating in the Program, need to repay every overpayment. On the 
other hand, those not participating and generally more well-off, are 
not charged with repaying smaller overpayments. The commenters also 
argued that the proposal is impractical because of the dynamic nature 
of the FSP. Since households move on and off the FSP, State agencies 
are unable to accurately assess which households are actually no longer 
participating in the FSP.
    We recognize the difficulties associated with limiting this 
threshold to non-participating households. However, allotment reduction 
is a readily available collection method for participating households. 
We believe that program integrity would suffer if a relatively large 
number of overpayments that are easily recoverable are routinely not 
pursued. In addition, the costs associated with allotment reduction are 
relatively small. Therefore, we are not extending the FNS threshold to 
include participating households. (See Sec. 273.18(e)(2)). However, to 
maximize flexibility, we would consider appropriate a threshold for 
participating households that is lower than the threshold for non-
participating households. State agencies may include such a two-tier 
threshold when it submits its own cost effectiveness plan for our 
approval.

Why don't we increase the amount of the FNS threshold to equal the 
highest amount allowed through waivers?

    So far we have approved cost effectiveness waivers for up to $250 
for non-participating households. One State agency recommended that we 
increase our FNS threshold from the proposed $125 to the highest amount 
($250) currently approved through waivers. The commenter stated that a 
review of the currently approved waivers demonstrates that the $125 
threshold is too low. We do recognize that a number of State agencies 
incur costs significantly above the $125 threshold. However, we 
purposely set this threshold lower to ensure that prudent claims 
management is maintained among those States that incur relatively low 
claim establishment and collection costs. States with higher costs are 
free to develop their own methodology. The $125 FNS threshold in the 
proposed rule remains. (See Sec. 273.18(e)(2)).

What is meant by not applying the FNS threshold to already established 
claims?

    In the proposed rule, the FNS threshold does not apply to already 
established claims. One State agency asked for clarification. The $125 
FNS threshold covers the combined costs of establishing and collecting 
the claim.

[[Page 41760]]

The threshold no longer applies once the claim is established. 
Disposing of an already established claim because it is not cost 
effective to collect is discussed in the Terminating Claims section of 
this preamble.

Shouldn't the FNS threshold automatically increase with inflation?

    The proposed FNS threshold is fixed at $125. One commenter 
recommended that the threshold automatically increase with inflation. 
The commenter makes a valid point. However, we are reluctant to include 
this in the final rule because we are unsure if we should tie claim 
establishment and collection costs directly to inflation. Advances in 
automation and the introduction of other efficiencies may actually 
bring down establishment and collection costs in the future. The 
threshold remains fixed in the final rule (See Sec. 273.18(e)(2)).

Isn't the FNS threshold unfair to larger households?

    Two commenters suggested that the claims threshold take into 
account both the monthly amount and duration of the overpayment. They 
felt it was unfair that a larger household can easily have an 
overpayment well over $125 in just one month, while a smaller 
household, that receives a smaller issuance, can have an overissuance 
that extends several months, but does not total over $125. The 
commenters felt that overpayments of short duration should not be 
pursued. The real problem is ongoing overpayments. The commenters 
suggested that a claim must both exceed $125 in total and represent 
overpayments continuing for more than three months.
    We recognize that a larger household, on average, would have a 
larger claim than a smaller household. However, basing a threshold both 
on duration and amount systematically excludes large overpayments from 
collection and removes an incentive for households to report changes 
timely. We do not believe that this is good claims management. The rule 
remains unchanged.

Will having different thresholds for some State agencies result in 
unequal treatment for households?

    State agencies have the option in the proposed rule to develop 
their own cost-effectiveness procedures. One commenter is concerned 
that this may result in unequal treatment to households across State 
lines. Unequal thresholds are certain to happen under this rule. 
However, State agencies have been working with different thresholds 
based on waivers for many years. Providing this flexibility provides 
State agencies with an important claims management tool. The fact that 
some will escape payment does not change the fact that all collections 
are from those who previously received overpayments. This proposal will 
remain in the final rule. (See Sec. 273.18(e)(2)).

Will State agencies receive guidance to determine their own cost-
effectiveness provisions?

    Some State agencies requested technical assistance to develop their 
cost-effectiveness provisions. We are developing broad guidelines based 
on prior waiver submissions. You may contact your regional office to 
obtain these guidelines as well as to receive other technical 
assistance in this area.

What is meant by ``jurisdiction'' in the preamble of the proposed rule?

    The preamble of the proposed rule (63 FR 29309) states that ``. . . 
no jurisdiction would be prevented from establishing and/or pursuing 
the collection of any claim that falls under the threshold.'' One State 
agency asked whether a ``jurisdiction'' meant a region, state or a 
county. The answer is State agency. However, our intent in this passage 
is not to dictate any further requirements or limitations. The intent 
is simply to provide that it is up to each State agency to decide how 
it wishes to use the threshold. We have no problem with State agencies 
delegating this authority to counties or other local agencies.

How can we be sure that any overissuance has a chance to be developed 
into a claim?

    We are concerned that any claims threshold not create an incentive 
for households to obtain overpayments below the threshold with 
impunity. To address this concern, we include in the final rule the 
stipulation that a claim must be pursued for any overpayment discovered 
through the quality control system. This ensures the chance that any 
overpayment, regardless of size, may be subject to establishment and 
collection. (See Sec. 273.18(e)(2)).

In summary, what changes regarding this proposal are incorporated into 
the final rule?

    There is only one change in threshold and cost-effectiveness 
determination policy from the proposed rule. That change is that a 
claim must be pursued if the overpayment is discovered in a quality 
control review.
Notification of Claim
    The proposed rule contains several new requirements regarding 
notification. These requirements affected either the food stamp 
application or the initial demand letter. We received 28 comments 
regarding the new and existing requirements.

Why must we add language to the application form concerning the use of 
the social security numbers to pursue claims?

    Six State agencies and one recipient interest group commented that 
it is more appropriate to include this information in the demand letter 
rather than the application form. The recipient interest group 
commented that the language appeared intimidating and may actually 
discourage participation in the program.
    The purpose of this language is not to be intimidating but rather 
to inform recipients how their social security number may be used. This 
notification is required by the Privacy Act of 1974 (5 U.S.C. 552a, 
note 2) and the Debt Collection Act of 1982 (31 U.S.C. 3716(a)). As a 
result, we have no choice but to include this notification in the final 
rule. However, we are simplifying the language to make it appear less 
intimidating. (See Sec. 273.2(b)(4)).
    One State agency asked why we include that claims ``may be referred 
* * * to the Department of Justice (DOJ) for litigation'' in the 
language to be included in the application form. We proposed to add 
this language because, since food stamp claims are Federal claims, they 
may, in fact, be referred to DOJ. However, because recipient claims are 
usually for relatively small amounts, referral to DOJ would be 
extremely rare. Therefore, we are not including this requirement in the 
final rule.

Does the household need to have actually received the notice for the 
notice requirements to have been met?

    Three recipient interest groups and two State agencies submitted 
comments concerning whether the household actually needs to receive the 
notice. The State agencies requested clarification as we do not address 
this specific area in the proposed rule. The recipient groups want to 
ensure that the household does, in fact, receive the notice. These 
comments are connected to the fact that we deleted a provision in the 
existing rule at 7 CFR 273.18(d)(1)(i)(B) that allowed State agencies 
not to pursue a claim if the household cannot be located.
    We believe sending the notice via first class mail is an efficient 
and reliable

[[Page 41761]]

method to deliver demand letters. If the mail is not returned by the 
Postal Service, the State agency can assume that the household received 
the notice. The State agency may then proceed with collection action.
    If the mail is returned, then obviously the household did not 
receive the notice. Under the existing regulations, the State agency 
did not need to further pursue this claim. The proposed rule eliminated 
this option. Considering the comments received above, we are 
reinstating this option in the final rule. State agencies may (but are 
not required to) terminate the claim if the household cannot be 
located. (See Sec. 273.18(e)(8)).

Are State agencies allowed to send the demand letter and notice of 
adverse action (NOAA) separately?

    The proposed rule requires the State agency to provide the 
household with a NOAA ``as part of or along with'' the initial demand 
letter/claim notification. Two commenters stated that they send the 
NOAA separate from the demand letter. The NOAA is sent subsequent to 
the demand letter, when it is determined what ``adverse action'' will 
take place.
    In our proposal, we did not intend to require that the NOAA 
accompany the demand letter. However, in looking at the proposed 
language, we see how it could be interpreted in that way. Therefore, we 
are changing this language in the final rule to clear up this 
confusion. (See Sec. 273.18(e)(3)(iii)).

Should the household be advised in the demand letter that the State 
agency can compromise the household's claim?

    Two recipient interest groups commented that the State agency needs 
to notify the household that the State may be able to compromise its 
claim. The groups cite a recent court case, Bliek v. Palmer, 102 F. 3d 
1472 (8th Cir. 1997). In Bliek, the court ruled that the failure to 
properly advise a household of the agency's compromise authority 
violates the household's due process rights.
    While we do not agree with the court decision that we were 
violating the due process rights of the household, we do recognize the 
benefits of including this language in the demand letter. Therefore, we 
are including language for the demand letter specifying that the State 
agency may compromise a claim in the demand letter requirements. (See 
Sec. 278.18(e)(3)(iv)(M)).

Don't we need more information in the demand letter in addition to 
informing the household of the ``type'' of claim?

    One recipient interest group commented that it is unclear as to 
what we mean when we require that the household must be informed of the 
type of overpayment. Our intention is that the household would be 
informed of the reason for the overpayment and time period involved. 
This also includes whether it is an IPV, IHE or AE claim as well as a 
brief explanation (such as unreported income, etc.). We make this 
intention clear in the final rule at Sec. 273.18(e)(3)(iv).
    We also received two comments stating that the demand letter needs 
to show how the claim was calculated. We agree and will include this as 
a requirement in the final rule. (See Sec. 273.18(e)(3)(iv)(E)).

Must the demand letter contain a due date?

    The purpose of including the due date in the demand letter is to 
determine delinquency. We received two comments on the proposed 
requirement to include a due date in the demand letter. One State 
agency asked whether a specific date is needed or if language such as 
``30 days from the date of this letter'' is sufficient. The commenter 
believed that a specific date is not needed since: (1) It is clear to 
the household when payment or a response is due and (2) the State 
agency would still be able to determine delinquency status. We agree. 
The second commenter believed that including a due date would confuse 
participating households. The due date is irrelevant for these 
households because they are about to have their benefits automatically 
reduced to pay off the claim. Again, we agree. However, any subsequent 
notification to the household once it leaves the program must include a 
due date. The final rule reflects this change. (See 
Sec. 273.18(e)(3)(iv)(N)).

Can a State agency continue to provide participating households with 
the choice of how to repay the claim?

    The proposed rule requires State agencies to automatically collect 
any claim from a participating household through allotment reduction. 
One State agency asked whether they could still give a participating 
household a choice in the demand letter of how to pay the claim.
    We believe that allotment reduction is by far the most efficient 
way to collect a claim. However, to maintain the spirit of this rule, 
we do not object if a State agency wishes to give the household other 
options. The only requirement is that the household pay off the claim 
at the same or higher level of the amount that would have been 
collected through allotment reduction. This is reflected in the final 
rule at Sec. 273.18(e)(3)(iv) and Sec. 273.18(g)(i).

What exactly needs to be included in the initial demand letter/claim 
notification?

    Two recipient interest groups commented that we should spell out 
exactly what needs to be in the demand letter. We agree. The following 
table lists what needs to be in the demand letter. The changes 
discussed above are included in this listing and at 
Sec. 273.18(e)(3)(iv) in the final rule:

The initial demand letter or NOAA must include . . .

    (1) The amount of the claim.
    (2) The intent to collect from all adults in the household when the 
overpayment occurred.
    (3) The type (IPV, IHE, AE or similar language) and reason for the 
claim.
    (4) The time period associated with the claim.
    (5) How the claim was calculated.
    (6) The phone number to call for more information about the claim
    (7) That, if the claim is not paid, it will be sent to other 
collection agencies, who will use various collection methods to collect 
the claim.
    (8) The opportunity to inspect and copy records related to the 
claim.
    (9) Unless the amount of the claim was established at a hearing, 
the opportunity for a fair hearing on the decision related to the claim
    (10) That, if not paid, the claim will be referred to the Federal 
government for federal collection action.
    (11) That the household can make a written agreement to repay the 
amount of the claim prior to it being referred for Federal collection 
action.
    (12) That, if the claim becomes delinquent, the household may be 
subject to additional processing charges.
    (13) That the State agency may reduce any part of the claim if the 
agency believes that the household is not able to repay the claim.
    (14) A due date to either repay or make arrangements to repay the 
claim, unless the State agency is to impose allotment reduction
    (15) If allotment reduction is to be imposed, the percentage to be 
used and the effective date.
Claims and Fair Hearings
    Households have 90 days to request a fair hearing if they believe 
that some

[[Page 41762]]

part of the claim is incorrect. Several comments were received on the 
interaction between fair hearings and claims.

What must the State agency include in the demand letter/repayment 
notice sent following a fair hearing decision?

    In the proposed rule, when a hearing decision is rendered 
sustaining an overpayment, the State agency must send a second demand 
letter to the household. Three State agencies questioned the need for 
such a letter as the household already received the original letter.
    It was not our intention to have the post-fair hearing demand 
letter be the same as the original demand letter. However, we still 
believe that some type of notice is necessary. The post-fair hearing 
demand notice only needs to be a statement saying that the household 
still owes the claim and what will be the next step (i.e., allotment 
reduction or demand for payment). The date of delinquency will be based 
on the time period provided in this notice. This clarification is 
reflected in the final rule at Sec. 273.18(e)(6)(ii).
    In addition, one local agency asked whether the household can 
request a fair hearing based on this notice. The answer is no. Since 
the amount of the claim has already been sustained at a hearing, a 
second hearing on the same issue is not an option.

Does collection action really need to stop when a fair hearing is 
requested?

    In the proposed rule, all collection actions would stop if a fair 
hearing is requested. Five State agencies disagreed with this proposal. 
The commenters stated that this procedure would result in collection 
delays of several months. We recognize the commenters' concerns. 
However, we believe that the rights of households supersede these 
concerns. For this reason, our policy to cease collection action when a 
fair hearing is requested will remain in the final rule.
Delinquency
    Referring appropriate claims for TOP and other Treasury reporting 
requirements make it necessary for us to determine when a claim 
initially becomes delinquent. In the proposed rule, a claim becomes 
delinquent if no response or payment is received by the due date in 
either the demand letter or repayment agreement. A claim remains 
delinquent until payment is received in full, a satisfactory payment 
agreement is negotiated, or allotment reduction is invoked. We received 
six comments specifically supporting this definition. We received an 
additional four comments concerning the applicability of this 
definition.

Can claims handled through the court ever be considered delinquent?

    The proposed rule stated that a claim may not be considered 
delinquent if collection is coordinated through the court system and 
the State agency has limited control over the collection action. One 
State agency commented that we should not make an exception for claims 
paid through the court. We are not making an overall exception in this 
case. Our intent is simply to accommodate situations that are unique to 
some States. In these situations, the State agency has limited contact 
with the court and is not always able to accurately determine the 
status of the claim. As a result, the State agency is unable to 
determine if the claim is delinquent. This policy only pertains to 
these situations. (See Sec. 273.18(e)(5)(v)).

Is the claim still considered delinquent if the household is making a 
good faith effort to pay the claim?

    The existing rules provide for a comprehensive notice and an 
opportunity to have a payment plan reinstated if an installment payment 
is missed.
    The proposed rule eliminated this provision. Three recipient 
interest groups commented that this provision should be reinstated. 
They contend that there may be many reasons why a payment may be 
missed, and those who are making a good faith effort to repay the claim 
should be protected. We agree with the commenters that a single missed 
or partial payment should not automatically subject the household to 
the involuntary collection actions brought about by TOP. When a good 
faith effort is being made to pay the claim, circumstances do exist 
where it may be appropriate to reinstall or re-negotiate the repayment 
schedule. However, even though the provision providing for this 
opportunity is removed, the effect of the provision is still the same. 
Under both the existing rules and Section 13(b)(4) of the amended FSA 
(7 U.S.C. 2022(b)(4)), State agencies already determine whether to 
accept a proposed reinstatement or re-negotiation plan. This final rule 
in no way prohibits households that are making a good faith effort from 
requesting reinstatement or re-negotiation of its payment plan and we 
strongly encourage State agencies to consider such requests on a case-
by-case basis. In addition, if hardship exists, a State agency may 
compromise a claim and/or adjust the installment payment to lower 
amount.

Should delinquency be pushed back to at least 90 days after the demand 
letter?

    We defined delinquency as when payment is not made by the due date. 
This due date is not to be more than 30 days after the date of the 
initial demand letter (see Sec. 273.18(e)(3)(v)). Three recipient 
interest groups suggested that the delinquency time frame should be at 
least 90 days. This 90 day period corresponds to the time period when 
the claim may be appealed as well as providing households with adequate 
time to determine how to address the claim. The commenters also contend 
that State agencies will incur unnecessary administrative expenses 
because they would need to reverse any collection process in place when 
the claim is appealed.
    We disagree with the commenters that 90 days would be more 
appropriate. The delinquency date is primarily used to determine 
whether a claim is to be referred for TOP. As specified in this final 
rule at Sec. 273.18(n)(1)(i), a claim must be delinquent for 180 days 
before being referred for TOP. Combined with a 30-day delinquency time 
frame, this already provides the household with up to 210 days after 
the initial demand letter to adequately address its claim. In addition, 
relatively few households request fair hearings on claims. State 
agencies have indicated that those households that do request a fair 
hearing usually make the request shortly after receiving the notice. 
Therefore, extending the delinquency time frame to accommodate the fair 
hearing time frame serves no practical purpose for either the household 
or the State agency. This proposal is carried over into the final rule. 
(See Sec. 273.18(e)(5)).
Household Cooperation Waiver Authority
    The ``Calculating Overissuance Claims'' section on page 29307 of 
the preamble to the proposed rule discussed allowing a State agency to 
waive up to 20 percent of the claim if the household cooperates with 
the establishment of its claim. However, we did not include this in the 
proposed regulatory text. Three commenters supported including this 
incentive in the final rule. However, eight commenters disagreed with 
this incentive stating that household cooperation should not be a basis 
for reducing an overissuance. We concur with the eight commenters and 
did not include this incentive in this final rule.

[[Page 41763]]

Terminating and Writing-Off Claims
    A terminated claim is a claim for which all collection action has 
stopped. A written-off claim is a claim that is no longer subject to 
our reporting and collection requirements. We proposed that a 
terminated claim must be immediately written off. The table below 
summarizes our proposed policy for State agencies on terminating and 
writing-off claims:

                      Proposed Termination Policy
------------------------------------------------------------------------
          If . . .               Then you . . .         Unless . . .
------------------------------------------------------------------------
(1) a hearing or court finds  must terminate and
 the claim to be invalid.      write-off the claim
                               or determine if an
                               IHE or AE claim
                               still exists.
(2) all adult household       must terminate and    you plan to pursue
 members die.                  write-off the claim.  the claim against
                                                     the estate.
(3) the claim balance is $25  must terminate and    ....................
 or less and the claim has     write-off the claim.
 been delinquent for 90 days
 or more.
(4) you determine it is not   must terminate and    we have not
 cost effective to pursue      write-off the claim   previously approved
 the claim any further.        if we previously      your overall cost-
                               approved your cost-   effectiveness
                               effectiveness         criteria.
                               criteria.
(5) the claim is delinquent   must terminate and    you have received
 for three years or more.      write-off the claim.  prior collections
                                                     through the Federal
                                                     Offset Program,
                                                     state tax refund
                                                     offset or any
                                                     similar collection
                                                     mechanism.
(6) a new collection method   may reinstate a       ....................
 is introduced or an event     terminated and
 (such as winning the          written-off claim.
 lottery) occurs to
 substantially increase the
 likelihood of further
 collections.
------------------------------------------------------------------------

    The public submitted 19 comments regarding this proposal. Four 
State agencies supported this proposal as written. The other commenters 
had concerns primarily focusing on accounting treatment, the three year 
termination time frame, and claim reinstatement.

Can a claim be found to be invalid (and subsequently terminated under 
the first criterion) only as a result of a hearing?

    Two commenters pointed out that terminating an invalid claim should 
not be limited to hearing decisions. Occasionally, a State agency 
becomes aware of factual information that negates an already 
established claim. In these instances, the commenters believe that the 
State agency should have the authority to terminate the claim. We 
agree. The final rule at Sec. 273.18(e)(8)(ii)(A) reflects this change 
by not limiting this termination criterion to hearing and court 
decisions.

Is writing-off an invalid claim considered proper accounting?

    One commenter stated that a claim found to be invalid (see 
criterion (1) above) should not be written-off but disposed of in 
another manner. The reason is that only ``bad debts'' should be 
written-off. An invalid claim is not a bad debt but rather a debt that 
never should have existed in the first place. We agree with the 
commenter. Therefore, in the final rule, we will reflect that all debts 
terminated because they are invalid will be considered a balance 
adjustment rather than a write-off. (See Sec. 273.18(e)(8)(ii)(A)).

Why is the time frame for terminating delinquent claims only three 
years?

    Six commenters expressed concern that three years are not long 
enough to pursue collection before terminating and writing-off the 
claim. According to the commenters, experience has shown that the 
nature of the Treasury Offset Program (TOP) is such that significant 
collections often take place after the claim is delinquent for three 
years.
    The purpose of proposing the three year time frame is to dispose of 
receivables that are laying idle and the likelihood of further 
collection action is relatively low. Recent audits and management 
reviews indicated a need to dispose of these claims. However, after 
considering these comments, we are going to modify this proposal. The 
final rule still allows State agencies to terminate claims that have 
been delinquent for three years. However, a State agency is not 
required to terminate the claim if it believes it is cost effective to 
retain the claim in TOP beyond the three years. In this manner, claims 
will either be terminated or actively pursued in TOP. No claim will be 
allowed to simply remain idle. (See Sec. 273.18(e)(8)(ii)(E)).

How does the cost-effectiveness criteria for terminating claims (the 
fourth criterion) differ from the cost-effectiveness criteria for the 
threshold for establishing and collecting claims?

    Clarification is needed in this area. The cost-effectiveness 
determination for terminating claims applies only to claims that are 
already established and are delinquent. These claims are relatively low 
dollar amount claims that are not actively being collected, the regular 
avenues of collection have been exhausted, and are simply not worth 
further collection pursuit. This criterion may not be used for claims 
that are current or are being paid. Claims are not to be automatically 
terminated when an outstanding receivable drops below a certain dollar 
amount. State agencies should contact us if they need further guidance 
in this area.

Why do we allow reinstating terminated and written-off claims?

    Five commenters expressed concerns about the proposed policy to 
reinstate terminated and written-off claims. The commenters generally 
opposed making this proposal a requirement. Concerns focused around 
this proposal imposing an unnecessary burden on State agencies for 
storage and record maintenance for a very small percentage of cases.
    We want to stress that this was proposed as an option and is not 
mandatory. A number of State agencies indicated a great desire to have 
this ability. This was proposed simply to enhance State agency 
flexibility. In the final rule, this ability will remain as an option. 
Only those State agencies that wish to pursue this course need to store 
and maintain records of terminated claims.

[[Page 41764]]

Why don't we establish a termination policy based on dollar amounts?

    One State agency commented that it would like to have the latitude 
to set different time schedules for termination and write-off based 
upon the amount and the cause of a claim. The commenter stated that 
notable differences exist between a $200 AE claim and a $10,000 claim 
caused by an IPV and these differences ought to be recognized when 
establishing administrative offsetting polices for writing-off 
delinquent claims. This is a valid point. We believe that the final 
rule at Sec. 273.18(e)(8)(ii)(E) provides for this flexibility. First, 
any claim that is delinquent for six months, be it for $200 or $10,000, 
should be referred for TOP. There will be no requirement to remove 
either claim from TOP for termination after three years. Second, under 
Sec. 273.18(e)(8)(ii)(D) in the final rule, the State agency has the 
authority to create its own cost effectiveness termination criteria. We 
do not object to any State agency treating IPVs differently from other 
claims when determining these criteria.

Should the termination policy be expanded to include other situations?

    One commenter stated that the termination policy should include 
bankruptcy cases and in instances where the responsible party is in a 
nursing home. We recognize that the possibility of collection 
diminishes in these situations. However, we do authorize State agencies 
in Sec. 273.18(j) of this final rule to pursue claims that file for 
bankruptcy. For the nursing home situation and in other instances where 
household circumstances negate further collection, the State agency can 
compromise the remaining balance of the claim (see Sec. 273.18(e)(7)), 
thereby gaining the same result as a termination and write-off. No 
change in the rule is necessary based on this comment.

What changes regarding this proposal are incorporated into the final 
rule?

    In addition to the changes discussed above, State agencies may also 
terminate a claim if the household cannot be located. We discuss this 
in the Notification of Claim section of this preamble. All of the 
changes are reflected in the table at Sec. 273.18(e)(8)(ii) in the 
final rule.
Compromising Claims
    Reducing a claim because a household is unable to pay is known as 
``compromising'' a claim. We proposed two changes in our policy on 
compromising claims. The first proposed change limits the State 
agency's authority to compromise claims to under $20,000. The second 
proposed change reinstates the compromised portion of a claim if the 
remaining claim balance subsequently becomes delinquent. We received 12 
comments on compromised claims. Ten of these comments dealt directly 
with these two proposed revisions. The remaining two comments addressed 
other aspects of our policy on compromising claims.

Why propose a $20,000 limit for compromising claims?

    Five commenters opposed establishing the $20,000 limit for 
compromising claims on the basis that the limit was too restrictive. 
One of the commenters added that attorneys should be allowed to 
compromise these larger claims through civil or criminal prosecution.
    We took the $20,000 limit in the proposed rule directly from 
Treasury's Federal Claims Collection Standards, 4 CFR 103.1, (FCCS). 
OMB Circular A-129 increased this limit to $100,000. One of the goals 
of this rule is to conform, wherever feasible, with the FCCS and other 
Federal debt collection guidelines. However, we must take into account 
that recipient claims are unique in that they are State-administered 
Federal claims. The comments show that there are instances, such as 
during prosecutions, where it is appropriate to allow States to retain 
the right to compromise any claim. Past practices by State agencies 
show that the current compromise policy (that has no dollar limit) is 
not being abused. Considering this, we have decided to delete this 
proposal and allow State agencies to continue to compromise any claim. 
(See Sec. 273.18(e)(7)).

Why mandate reinstatement of compromised amounts if the remaining 
balance becomes delinquent?

    As stated above, a second proposed change reinstates the 
compromised portion of a claim if the remaining claim balance 
subsequently becomes delinquent. This proposal provides an added 
deterrent against a debt becoming delinquent. Five commenters objected 
to this proposed mandate. The reasons given were: (a) Mandatory 
reinstatement is too harsh given the household's economic 
circumstances; (b) reinstating the compromised amount may go against a 
court order; (c) the proposal is too complex to administer; and (d) 
costly system changes are needed to implement the proposal.
    Considering these comments, we recognize that mandating 
reinstatement of compromised claims places an added burden on State 
agencies. This burden goes beyond what we believe is necessary for 
efficient and effective claims management. Therefore, we are revising 
this proposal to give State agencies latitude in this area. In the 
final rule, reinstatement is a State agency option rather than a 
mandate. (See Sec. 273.18(e)(7)).

Should we even allow State agencies to compromise claims?

    One commenter believed that no claims should be compromised. We 
disagree. Compromising claims is a proven effective claims management 
tool widely used in both the public and private sectors. With 
compromising authority, State agencies can manage their outstanding 
receivables better by pursuing amounts that they can expect to collect.
Accepting Payments

Are State agencies required to accept credit and debit card payments?

    The proposed rule allows State agencies to accept payments from 
credit and debit cards if the agency has the capability to accept such 
payments. One State agency expressed a concern that claims may need to 
be waived if agencies do not accept a credit or debit card when it is 
authorized by us. This is not the case. We only authorize this 
collection method. We do not require it. No change is needed in the 
final rule.

Will we reimburse State agencies for credit card processing fees?

    One State agency asked whether we will reimburse State agencies for 
credit card processing fees. Credit card processing fees will be 
reimbursed at the same rate as all other allowable administrative 
costs. This rate is currently 50 percent. Since this is consistent with 
the reimbursement rules at 7 CFR 277.4, no change is needed in this 
rule.

What about debts that are to be paid for with community service?

    One State agency commented that we need to add provisions to 
accommodate debts being paid through community service. The agency 
further states that some judges in its State are ordering community 
service at an hourly rate ranging from $15 to $100. The commenter 
believes that this rate should not exceed minimum wage.
    We concur that a provision is needed to recognize that debts may be 
settled by community service. This addition can be found in 
Sec. 273.18(g)(7) of the final rule. Since community service activity 
varies greatly, we are reluctant to set a specific hourly rate for such 
work.

[[Page 41765]]

Therefore, we leave it up to the State agency, in conjunction with the 
court, to determine this rate.

Is requiring the pro-rata distribution of non-specified payments now 
required?

    We proposed that each affected assistance program with a claim 
receive its fair share when the State agency receives an unspecified 
collection for a combined public assistance/food stamp recipient claim. 
An unspecified collection is a general payment received in response to 
a notice or referral in which the food stamp claim is combined with 
another claim(s). Our primary concern is that, on occasion, State 
agencies give PA/TANF claims first priority in unspecified collections. 
The reason for this is because the State agency retains 100 percent of 
PA/TANF collections. On the other hand, the State agency retains an 
aggregate of only about 22 percent of FSP claim collections. The 
remaining 78 percent (consisting of 65 percent of IPV collections, 80 
percent of IHE collections and 100 percent of AE collections) is 
returned to us.
    Nine State and local agencies objected to this proposal. One 
objection is that this proposal will require large-scale system 
changes. Two State and one local agency believed that the State should 
be able to assess collections to where they believe it would be most 
beneficial. Other State agencies commented that prior agreements with 
households should take precedence.
    Our goal with this proposal is to ensure that State agencies are 
not routinely assigning all unspecified claims collections to non-FSP 
programs. This provision does not pertain to any existing or future 
agreements with households or collection methods targeting a payment to 
a certain program. Only unspecified payments are included and we 
strongly believe that these collections should be distributed fairly. 
We do not believe that this places an undue burden on State agencies. 
Therefore, we have retained this proposal in the final rule at 
Sec. 273.18(g)(9). Any State that has an alternative distribution 
system that is equitable or believes that it will take large-scale 
system changes to comply with this provision can submit a waiver 
request for our consideration.
Collection of Agency Error Claims
    Prior to the enactment of PRWORA, AE claims could only be collected 
on a voluntary basis. PRWORA amended section 13 of the FSA (7 U.S.C. 
2022) to subject all claims--including AE claims--to involuntary 
collection methods. This change was reflected in the proposed rule. We 
received a wide range of comments in this area.

Is holding households responsible for an error that was not their fault 
considered good public policy?

    Three State agencies commented that using involuntary collection 
methods to recoup these claims is not good public policy since the 
households may not even have been aware of the error prior to the 
implementation of the involuntary collection actions. One commenter 
stated that the follow-up work necessary for the State agency to answer 
inquiries as well as conduct hearings takes up a disproportionate 
amount of time. In addition, the same commenter believed that the focus 
of the new provisions affecting AE claims should not be on the 
household but on the food stamp agency that caused the error.
    We recognize the commenters' concerns and are working with State 
agencies to reduce these types of errors. However, a household with an 
AE claim did, in fact, obtain more benefits than it was entitled to 
receive. But most importantly, section 13 of the FSA (7 U.S.C. 2022), 
as amended by PRWORA, is clear that all overpayments are to be 
collected. Any stipulations in the law to make special allowances for 
overpayments caused by agency errors were removed by PRWORA. Therefore, 
we believe that we are following the intent of Congress by having State 
agencies vigorously pursue these overpayments.

Why aren't AE claims subject to equitable estoppel?

    Equitable estoppel is a legal concept adopted by a number of States 
that provides that individuals should not be held responsible for 
errors that were not their fault. The preamble of the proposed rule at 
63 FR 29307 clarified that, since food stamps are Federal benefits, 
Federal law does not allow for an exception for equitable estoppel in 
AE claims. We received three comments regarding this issue.
    Two recipient interest groups disagreed with our position on AE 
claims and equitable estoppel. They believe that the FSA does not 
specifically prohibit equitable estoppel, especially since this 
activity is delegated to State agencies. We disagree. Section 13(a)(2) 
of the FSA clearly states that a household `` . . . shall be . . . 
liable for the value of any overissuance of coupons.'' This language 
establishes that a household must be held accountable for any claim, 
including those caused by agency errors.
    One State agency commented that we need to strengthen the fact that 
equitable estoppel does not apply to food stamp AE claims. The 
commenter suggested that we add specific language to the regulations 
indicating this position. We do not believe that this is necessary. The 
discussion above and in the preamble of the proposed rule should 
suffice and no change is needed in the final rule.

Should we have the same rule for dropping AE claims that exists in the 
Supplemental Security Income Program (SSI)?

    We received four comments recommending that we establish a policy 
similar to SSI for waiving AE claims. In SSI, a claim may be waived if:
    (a) The overpaid individual was without fault in connection with 
the overpayment, and
    (b) Adjustment or recovery of the overpayment would either:
    (1) Defeat the purpose of the SSI program, or
    (2) Be against equity and good conscience, or
    (3) Impede efficient or effective administration of the SSI program 
due to the small amount involved.
    The commenters are particularly interested in waiving AE claims 
that fit criteria (b)(1) and (b)(2) above. We recognize that this 
recommendation does have some merit. However, we believe that State 
agencies already have similar authority. State agencies are currently 
authorized to compromise claims when households are unable to pay 
because of hardship or similar reasons. Therefore, we do not believe 
that this change is necessary.
Allotment Reduction
    The proposed rule introduced a number of changes in allotment 
reduction as a means of claims collection. We received a number of 
comments on these changes and allotment reduction in general.

Is allotment reduction now required for participating households with 
claims?

    The proposed rule states that a State agency must use allotment 
reduction to collect claims against participating households. Five 
commenters believe that State agencies should be able to choose whether 
to invoke allotment reduction against a particular household. Four of 
the commenters point out that that section 13(b)(4) of the FSA (7 
U.S.C. 2022(b)(4)) was amended by PRWORA to specify that claims are to 
be collected in accordance with ``. . . requirements established by the 
State

[[Page 41766]]

agency for . . . electing a means of payment. . . .''
    We recognize this passage in the FSA. However, section 4(c) of the 
FSA (7 U.S.C. 2013(c)) states that we must issue regulations necessary 
for the effective and efficient administration of the FSP. As discussed 
earlier in this preamble, allotment reduction is the most efficient 
collection method. Therefore, we believe that it is within our 
authority to mandate allotment reduction. However, to maintain the 
spirit of this rule, we do not object if a State agency wishes to use 
an alternative collection method. The only requirement is that the 
household will be paying off the claim at least at the same level as 
the amount that would have been collected through allotment reduction. 
This is reflected in Sec. 273.18(g)(1)(i) of this rule.

Doesn't allowing involuntary allotment reduction for AE claims 
established before PRWORA violate due process?

    Section 844 of PRWORA amended section 13 of the FSA (7 U.S.C. 2022) 
by removing the provision prohibiting State agencies from using 
involuntary allotment reduction against households with AE claims. The 
proposed rule allows this type of collection and does not exclude those 
AE claims that were established prior to the enactment of PRWORA. Four 
recipient interest groups submitted comments stating that this change 
should not apply to pre-PRWORA AE claims. The specific concerns of the 
group are that: (1) The law makes no provision to apply the allotment 
reduction retroactively and (2) to do so would violate the household's 
due process rights.
    We recognize that PRWORA is silent on the question of whether this 
provision applies to claims established before the passage of PRWORA. 
However, we believe that recoupment of all claims regardless of the 
date of establishment is consistent with and implied by the FSA. Prior 
to PRWORA, households were still obligated to pay AE claims. By 
allowing allotment reduction for pre-PRWORA AE claims, we are simply 
introducing an additional collection procedure. We are not altering the 
status of the claim.
    The commenters were also concerned that this action would violate 
due process rights. We shared this concern. For this reason, when 
PRWORA was originally enacted, we instructed State agencies to re-
notice households that would be affected by this change in the law. 
Since this procedure affects a limited number of cases and State 
agencies have already been notified, we do not believe that this needs 
to be specified in the final rule.

Why can't State agencies reduce benefits for the first month that a 
household receives benefits?

    The proposed rule carried over our longstanding policy not to 
reduce an initial allotment to pay off a claim. The reason for this is 
because the allotment is frequently reduced based on when the 
household's application was filed. Three State agencies disagreed with 
this policy. The commenters recommended that a pro-rated reduction be 
done based on the reduced allotment. The State agencies saw no reason 
why it should lose this month in which the claim could be collected.
    While the commenters do raise valid points, we hesitate to change 
this longstanding policy. First, as stated above, the household's 
allotment is already reduced. Second, there was no discussion to change 
this policy in the proposed rule. The final rule remains unchanged.

As a State agency, why can't I collect a claim from the same household 
by using TOP in addition to allotment reduction?

    The proposed rule does not allow a State agency using allotment 
reduction to also collect the claim from members of the same household 
using TOP. One State agency commented that it should be able to use 
both methods simultaneously. We disagree. TOP is for non-participating 
household members. We do not believe members in households that are 
currently receiving benefits should, at the same time, be subjected to 
the delinquent processing charges imposed by TOP. The final rule 
remains as proposed.

Can State agencies use additional collection methods against a 
household at the same time while they are collecting through allotment 
reduction?

    Four commenters believed that State agencies should be able to use 
additional non-TOP collection methods against a household that is 
having its allotment reduced. Conversely, five commenters supported not 
allowing additional collections in this circumstance. State agencies 
regularly employ their own methods to collect food stamp recipient 
claims. These methods include but are not limited to lump sum and 
installment payments, wage garnishments, UCB intercept, and State tax 
refund and lottery winnings offsets. Although we provide the State 
agency broad authority in this area, we do not believe that it is fair 
to the household for the State agency to employ most of these 
additional collection methods when the household is already having its 
allotment reduced. This is reflected in this final rule. There are two 
exceptions to this rule: (1) When the additional payment is voluntary; 
or (2) when the source of the payment is irregular and unexpected such 
as a State tax refund or lottery winnings offset. (See 
Sec. 273.18(g)(1)).

Why did we increase the minimum allotment reduction amount for IPV 
claims to $20 per month?

    Current regulations at 7 CFR 273.18(g)(4)(iii) limit the reduction 
amount for an IPV claim to the greater of 20 percent of a household's 
monthly entitlement or $10 per month. The proposed rule increased the 
$10 to $20. One recipient interest group objected to this increase. The 
commenter believed that this is unnecessarily punitive to households 
and adds little increase in collection receipts to State agencies. We 
disagree. We do not believe that the additional $10 per month, 
especially when a household member was involved in such a serious 
infraction, would create a significant household burden. In addition, 
little additional work is needed by the State agency to collect the 
additional amounts. The final rule remains unchanged. (See 
Sec. 273.18(g)(1)).

Can State agencies ever reduce an allotment at a rate greater than the 
prescribed limits?

    The proposed rule set limits for the maximum rate of allotment 
reduction. For IPV claims, the proposed rate is $20 or 20 percent 
(whichever is greater) of the entitlement or allotment. For IHE and AE 
claims, the rate is $10 or 10 percent of the allotment, whichever is 
greater. Two State agencies recommended that they be given authority to 
reduce allotments at rates higher than what we proposed. The commenters 
believe that households with additional income and resources should be 
able to have their benefits reduced at a greater percentage.
    We want to make it clear that, with the household's permission, 
State agencies are able to reduce an allotment at a rate higher than 
the prescribed limit. This is carried over into the final rule. We are 
not, however, allowing State agencies to collect at higher rates 
without this permission. Section 13(b)(3) of the FSA (7 U.S.C. 
2022(b)(3)) establishes these limits (the greater of 10 percent or $10) 
for IHE and AE claims. This rate cannot be changed. We believe that the 
doubling of this rate (to the greater of 20 percent or $20) is fair for 
IPV claims. The final rule remains unchanged. (See Sec. 273.18(g)(1)).

[[Page 41767]]

Why allow State agencies to use benefit entitlement rather than the 
actual allotment for determining how much of a monthly payment to use 
for IPV allotment reductions?

    The current regulations at 7 CFR 273.18(g)(4)(iii) required State 
agencies to base IPV allotment reduction on entitlement rather than the 
actual allotment. Entitlement is what the household would have received 
if the individual who received the IPV was still participating. In the 
proposed rule, we gave State agencies the option to use the actual 
allotment as the base. Three recipient interest groups recommended that 
we just have State agencies use the allotment rather than entitlement. 
The commenters believe that basing the reduction on entitlement places 
too much of a burden on households.
    As discussed above, State agencies are currently required to base 
IPV allotment reduction on entitlement. In the final rule, we are 
allowing State agencies to use the allotment as the basis. This, in 
itself, would provide relief to some households. Requiring all State 
agencies to base IPV benefit reductions on allotment at this time would 
go against the spirit of this rule by reducing the amount of 
flexibility afforded to State agencies. In addition, some State 
agencies would incur significant costs for system changes. The final 
rule remains unchanged.

Can State agencies now use benefit allotment as the basis for reducing 
allotments against households that are already getting their benefits 
reduced based on the entitlement?

    One State agency asked if it can apply this rule change to 
households that are already getting their benefits reduced based on the 
entitlement. We do not place any limits on the applicability of this 
provision in the final rule and have no objection to the State agency's 
request.
Collecting a Claim From Individuals in Separate Households
    All adults who were members of the household when the overpayment 
occurred are responsible for repaying the claim. The proposed rule 
allows the State agency to pursue additional collection activity 
against any individual liable for the claim who is not currently a 
member of a participating household that is undergoing allotment 
reduction. Several commenters supported this provision. One State 
agency had the following question:

Are State agencies required to reduce the allotments of all affected 
households when two or more individuals responsible for the claim are 
now receiving benefits in different households?

    The State agency is concerned because many State systems are not 
set up to accommodate this type of simultaneous collection. The 
commenter believes that the State agency should have the option to 
collect from only one of the participating households. While there is a 
definite benefit to having simultaneous allotment reductions, we 
recognize and share the State agency's concern. Therefore, to maintain 
the spirit of this final rule, we are allowing, but not requiring, this 
type of collection. (See Sec. 273.18(g)(1)).
Using EBT Benefits To Collect a Claim
    The current regulations are silent on using EBT benefits to collect 
a claim. We proposed the following policy in the May 28, 1998 rule:

   Proposed EBT Benefits Claims Collection Policy for State Agencies
------------------------------------------------------------------------
       You must . . .               and . . .             and . . .
------------------------------------------------------------------------
(1) allow a household to pay  the household must    the retention rules
 its claim using benefits      give you written      apply to this
 from its active food stamp    permission.           collection.
 EBT benefit account.
(2) allow payments from       the household must    the retention rules
 stale EBT benefit accounts    give you written      apply to this
 once the account is           permission.           collection.
 reactivated.
(3) adjust the amount of the  this can be done      the retention rules
 claim by subtracting any      either when           do not apply to
 amount expunged from the      establishing the      this adjustment.
 claim balance.                claim or anytime
                               after.
------------------------------------------------------------------------

    An active EBT account, as referred to in the first row of the 
table, is one where the household readily has access to the account. 
Generally, provided the household accesses its benefit account each 
month, the account remains active. If the account is not accessed for 
three months or longer, the account is considered dormant or stale. To 
activate a stale account, the household must first contact the State 
agency. An expunged account, as referred to in the third row of the 
table, is when the State agency erases the value of the benefits from 
the household's account and reports to us the total amount expunged so 
that we may deobligate the funding. No funds are ever paid. This is 
usually after no benefits have been accessed from the account for one 
year. The household permanently loses these benefits.
    We received 53 comments on this comprehensive proposal. Six of 
these comments supported some aspect of this proposal. The remaining 47 
comments had specific concerns. Because of the nature of the comments, 
we are dividing this discussion into two parts: Collecting Claims Using 
Active and Stale EBT Benefits and Adjusting Claims using Expunged EBT 
Benefits.

Collecting Claims Using Active and Stale EBT Benefits

    We proposed that State agencies be able to collect claims from 
active or stale EBT benefit accounts with the household's permission. 
State agencies would retain the usual amounts for this method of 
collection. We received a number of comments on the use of collection 
method:

How can State agencies obtain funding to implement this procedure?

    Two State agencies expressed concern about obtaining funding to 
implement this provision. The commenters noted that some State agencies 
will need to purchase equipment to access EBT accounts and conduct 
these transactions. However, the commenters provided no information 
that these costs are prohibitive. Funding is available in the usual 
manner with State agencies being compensated according to the 
reimbursement provisions for administrative costs in section 16(a) of 
the FSA (7 U.S.C. 2025(a)). In addition, State agencies will also 
receive the regular retention amounts for these collections.

[[Page 41768]]

What procedures must be used when State agencies access households' EBT 
benefit accounts to collect claims?

    State agencies are to develop their own procedures for accessing 
EBT benefit accounts. One recipient interest group expressed a concern 
about the security of EBT accounts. We agree with the commenter that 
security procedures must be in place to ensure that only those workers 
that are authorized actually gain access to a household's EBT benefit 
account. To address this, we already have EBT system security 
regulations in place at 7 CFR 274.12(h)(3). The EBT security 
regulations include dual controls and access controls such as passwords 
for those authorized to perform this activity. Therefore, there is no 
need to duplicate this regulation in Sec. 273.18 of this rule.

Why are these payments treated as non-cash payments?

    The proposed rule specifies that a collection using EBT benefits is 
considered a non-cash collection and corresponding funds are not to be 
drawn from the Federal EBT account by the State agency. Two State 
agencies are concerned that this policy will create discrepancies in 
their account receivable systems. The commenters believe that since 
this non-settling transaction will not be handled as a cash 
transaction, the amount drawn from the Federal EBT account will not 
equal the withdrawals from the households' accounts.
    We see no reason why a State agency needs to draw down Federal 
funds only to return them at a later date. Current EBT systems 
accommodate this transaction as non-settling without difficulty. The 
original scheme for EBT repayment of claims was designed to fit within 
the current reporting and retention processes State agencies have in 
place for coupons. Payment via coupons has always been considered a 
non-cash transaction for retention and reporting purposes. The rule 
remains unchanged. (See Sec. 273.18(g)(2)(iii)). We are available to 
provide technical assistance if State agencies still believe that they 
are unable to do this procedure.

Should we provide model household permission forms for State agencies 
to use for gaining household permission for EBT collections?

    In the proposed rule, we require that collections from active EBT 
benefit accounts be transacted only with the written permission of the 
household. One recipient interest group recommended that we provide 
State agencies with model authorization forms to ensure that the 
household's consent is informed and voluntary. We agree with the 
commenter that additional guidance is needed in this area. However, in 
lieu of providing a model form (which stifles State agency 
flexibility), we are providing a clear listing of the minimum 
requirements for a household permission form. This listing serves the 
same purpose as a model form and is found in Sec. 273.18(g)(2)(iv) of 
this final rule.

Should written permission be for an indefinite period?

    The preamble for the proposed rule stated that a signed document is 
not necessary for each EBT collection if the transaction was provided 
in accordance with a signed agreement. We received five comments 
regarding this issue. Two commenters recommended that we place a limit 
on the length of these agreements. We believe that State agencies 
should be able to limit the length of these agreements as they wish. 
However, we do not believe that it would be within the spirit of this 
rule to mandate that these agreements be limited.
    Three commenters recommended that a household be allowed to revoke 
prior authorizations. Since this type of collection is strictly 
voluntary, we agree with the commenters. This change is found in 
Sec. 273.18(g)(2)(iv)(E) of this final rule.

Does permission to collect through EBT benefit accounts always need to 
be in writing?

    One commenter recommended that State agencies be able to use 
documented verbal authorization on a limited basis. According to the 
commenter, it is practical and less burdensome for both the household 
and the State agency to be able to conduct a single transaction while 
obtaining authorization from the household over the telephone. The 
household would then be sent a receipt documenting the transaction.
    We concur with this recommendation and are including it in the 
final rule at Sec. 273.18(g)(2). This procedure streamlines the process 
without sacrificing the rights of the household. In the case of a 
misunderstanding, the household can always request the return of the 
benefit in a fair hearing.

Is there any way that State agencies can collect on a stale EBT benefit 
account without receiving prior authorization?

    One commenter recommended that State agencies be able to collect 
without prior written authorization from stale EBT accounts. They 
believe that with this authority State agencies could recover, and 
possibly, close many outstanding claims. We share the commenter's 
concern and belief. Therefore, we have devised a procedure to allow 
this type of collection while safeguarding the rights of the household.
    In the final rule, State agencies may reduce benefits from stale 
EBT accounts to collect claims using the following procedure:
    (1) The State agency mails or otherwise delivers to the affected 
household notification that the agency intends to reduce the 
household's stale EBT benefit to pay off an outstanding claim. (2) The 
notification specifies a time period for the household to respond if it 
does not want its benefits to be used to pay off the claim. This time 
period, which is to be established by the State agency, must be at 
least 10 days. (3) If the household does not respond by the established 
time period, the State agency then may reduce the EBT benefit account 
to pay off the claim.
    We believe that this procedure strikes an appropriate balance 
between efficient claims collection and household rights. With this 
procedure, households can easily pay off and State agencies dispose of 
claims. In addition, any household that does not want its benefits to 
be reduced can simply prevent this by notifying the State agency. (See 
Sec. 273.18(g)(2)).

Why can't State agencies involuntarily collect from an EBT account when 
the household was at fault?

    Two State agencies believe that permission should not be needed at 
all to collect IPV or IHE claims through EBT benefit accounts. We 
disagree. These households are already undergoing allotment reduction. 
Allowing further involuntary benefit reductions against these 
households undermines the intent of section 13(b)(3) of the FSA (7 
U.S.C. 2022(b)(3)). This section places a limit on the amount that a 
household's allotment can be reduced to pay a non-fraud claim. We 
firmly believe that an eligible household actively participating in the 
program should not have additional benefits involuntarily taken away. 
The EBT benefit collection methods and procedures discussed above 
strike a balance between efficient and effective claim collection from 
EBT benefits while ensuring household rights and access to those 
benefits.

[[Page 41769]]

Collecting Claims using Expunged EBT Benefits

    An expunged EBT benefit is a benefit that has been removed from a 
household's account because the account is not being used. Benefits are 
expunged when the account is not accessed for one year. Since these 
benefits were never used, we proposed that they be subtracted from the 
claim amount and recorded as an adjustment. Also, because this is not 
considered a collection, there would be no retention. We received a 
number of comments on the use of expunged benefits to adjust claims.

Should State agencies receive retention when using expunged benefits 
for claims?

    State agencies generally retain 35 percent of IPV collections and 
20 percent of IHE collections. In the proposed rule, we do not allow 
State agencies any retention for reducing claim balances with expunged 
benefits. We received 15 comments recommending that State agencies 
receive the retention amount for these transactions. The commenters 
believe the retention for collecting claims should be a reward for a 
State agency's comprehensive effort to establish and pursue the claim. 
The fact that the claim is reduced because it is an expunged (rather 
than an active or stale) benefit should not matter.
    We recognize that establishing and pursuing a claim is labor-
intensive and costly. Requesting retention for expunged benefit 
adjustments is not unreasonable. However, we are unable to comply with 
this request because we cannot provide retention for ``collecting'' an 
amount that no longer exists. This provision remains as proposed. (See 
Sec. 273.18(g)(2)(ii)(C)).

Is proposing not allowing retention for expunged benefits the first 
step towards classifying all non-cash payments as non-retention 
eligible?

    Three commenters considered it a dangerous trend to propose not 
allowing retention for expunged benefits. They believe that this is the 
first step towards classifying all non-cash payments as non-retention 
eligible. Non-cash payments currently include payments made from active 
and stale EBT benefit accounts, allotment reduction, and food coupons.
    We proposed not allowing retention for expunged benefits because 
this is an adjustment rather than a collection. Since the benefits have 
already been returned to the Federal government, there is no net gain 
by applying the expunged amount against a claim. This is not the case 
with non-cash claims collections. As such, State agencies need not be 
concerned about us classifying non-cash payments as non-retention 
eligible. Unless we receive a legislative mandate, we cannot foresee us 
changing this policy. We strongly believe that retention should remain 
an inherent part of the claims collection process.

Doesn't using expunged benefits to adjust a claim adversely impact 
basic accounting procedures?

    Two commenters are concerned that allowing State agencies to reduce 
a claim using expunged benefits would adversely impact accounting 
treatment and procedures. When benefits are expunged, obligations and 
issuances are reduced. In effect, the benefits no longer exist as if 
they were never issued. Therefore, according to one of the commenters, 
it is not logical to reduce a claim balance by benefit amounts that no 
longer exist.
    We agree with the commenters that the benefit amounts no longer 
exist. However, we do believe that we have the authority and that it is 
appropriate to allow balance adjustments based on expunged benefits. 
This ability is based on section 13(a)(1) of the FSA (7 U.S.C. 
2022(a)(1)) which clearly provides us with broad authority to adjust 
any claim. The appropriateness is based on the fact that the funds were 
available to the household and never actually used.

Are State agencies required to reduce claim balances with expunged 
benefits?

    Six commenters, mostly recipient interest groups, supported making 
this procedure a requirement. We received 13 comments, mostly from 
State agencies, that do not want this procedure to be a requirement. 
These State agencies stated that requiring this procedure for all 
claims would be burdensome, costly, and require significant system 
changes. State agencies would need to track benefits issued and 
subsequently expunged for an extended period.
    While we believe that there are definite benefits for using 
expunged benefits to reduce claims, we recognize that this change may, 
in fact, create a burden for some State agencies. We also recognize 
that current system limitations and general household dynamics may make 
this requirement somewhat difficult for State agencies to implement. 
Therefore, we are modifying this requirement to include only those 
expunged benefits for which State agencies become aware. State agencies 
are to develop their own procedures regarding applicability, limits and 
use. We are not requiring State agencies to overhaul their EBT systems 
to conform to this new procedure. (See Sec. 273.18(g)(2)(ii)(C)).

Can State agencies reduce IPV claims by using expunged EBT benefits?

    One State agency commented that we should not allow expunged EBT 
benefits to be used to reduce IPV claims. The commenter believes that 
this allows violators to avoid their liability. We disagree. Expunged 
benefits are benefits that a recipient was once entitled to use. By not 
using the benefits, the household did experience a loss. Therefore, we 
do not believe that a liability is being avoided by allowing this type 
of collection for EBT benefits. The final rule allows State agencies to 
offset all claims with expunged benefits.

Can State agencies reduce trafficking claims by using expunged EBT 
benefits?

    Three recipient interest groups believed that expunged benefits 
should also be used to reduce trafficking claims. We agree. We believe 
that it is important to maintain a consistent policy in the application 
of expunged EBT benefits against claims. Therefore, the final rule 
reflects that expunged EBT benefits can be applied to any claim. (See 
Sec. 273.18(g)(2)(ii)(C)).

Do the expunged benefits need to be for the same month of the 
overissuance to be applied to a claim?

    Six comments were received requesting clarification regarding 
whether the expunged benefits needed to be for the month of the 
overissuance. Some commenters believed that the expunged benefits 
should be only for the month of issuance. Other commenters expressed 
concern about not always being able to match up the expunged benefit 
with the overpayment. We recognize that for some State agencies 
matching up the benefits with the overpayment may be difficult and 
burdensome. For this reason, we are providing latitude in this area by 
allowing States to apply expunged benefits to any overissuance. (See 
Sec. 273.18(g)(2)(ii)(C)).

Where in this rule is the final policy on using EBT benefits to collect 
claims?

    The final policy, including changes based on the comments addressed 
above, is at Sec. 273.18(g)(2).
Intercept of Unemployment Compensation Benefits
    The proposed rule gives State agencies the option to reduce a 
person's unemployment compensation benefit

[[Page 41770]]

(UCB) to pay off a claim. Section 13(c)(3) of the FSA (7 U.S.C. 
2022(c)(3)), however, requires that the State agency first obtain a 
court order or authorization from the individual prior to reducing the 
UCB. One State agency objected to this requirement. We recognize that 
this requirement makes it more difficult for State agencies to use this 
method effectively. However, we cannot change this requirement, since 
it is specified in the FSA. As a result, this requirement remains in 
the final rule. (See Sec. 273.18(g)(6)).
Offsetting Restored Benefits
    The proposed rule continued our longstanding policy that State 
agencies are to offset restored benefits owed to a household by the 
amount of any outstanding claim. A restored benefit is a benefit from a 
prior month that the household was entitled to but never received. Five 
recipient interest groups objected to this provision. The commenters 
believe that a households should receive the full amount of any 
benefits that are restored. They cite a recent court ruling, Lopez v. 
Espy, 83 F.3d 1095 (9th Cir. 1996), in which the court made this 
ruling.
    We are aware of this ruling. However, there is another court 
ruling, Dunn v. Secretary of U.S. Department of Agriculture, 921 F.2d 
365 (1st Cir, 1990), in which our policy was upheld. We continue to 
believe that it is within our authority to have State agencies offset 
benefits prior to restoration. The final rule remains unchanged. (See 
Sec. 273.18(g)(3)).
Collection Limits
    The proposed rule did not place a limit on how much can be 
collected from a household during any given year. Three recipient 
interest groups recommended that a household should not be subject to 
collection amounts that total over 15 percent of the household's annual 
income. The commenters believe that the proposals allowing simultaneous 
collection methods against the same households will result in some 
households being subject to onerous collection burdens. We do not 
believe that this limitation is necessary. State agencies have the 
ability to compromise the claim if paying off the claim is too much of 
a burden on the household. In addition, the average claim established 
in fiscal year 1999 is $427. We do not believe that collecting this 
claim, especially in installments, is a severe burden. Finally, 
involuntary allotment reduction is already capped at 20 percent or $20 
for IPV claims and 10 percent or $10 for IHE and AE claims. Based on 
the above, the final rule remains unchanged.
Interstate Claims
    The proposed rule at Sec. 273.18(k) required that State agencies 
accept transfers of claims from other State agencies if it is 
discovered that the household is receiving food stamp benefits within 
the receiving State. A total of 17 comments were received regarding 
this proposal. While all commenters agreed with retaining this proposal 
(at least) as an option, 15 of the commenters did not support making 
this proposal a requirement. Six commenters stated that frequent moves 
by recipients and the absence of a national recipient database make 
this proposal difficult to manage. In addition, seven commenters 
expressed concerns with problems associated with fair hearing 
procedures and coordination involving interstate claims.
    We recognize that differences among State agencies and the absence 
of a national recipient database does make this proposal difficult to 
manage. In addition, we also recognize that the advent of the Treasury 
Offset Program has made the collection of interstate claims for the 
originating State agency much easier. Therefore, we are dropping this 
proposal from the final rule. Transferring claims between States will 
remain an option. Even though this will remain an option, we strongly 
encourage State agencies to work together to utilize this procedure as 
much as possible.
Providing Refunds for Overpaid Claims
    In the proposed rule, a State agency is to provide a refund to the 
household for an overpaid claim as soon as possible after the State 
agency becomes aware of the overpayment. Four commenters recommended 
that ``as soon as possible'' be defined as 30 days. We agree with the 
commenters that a refund needs to be prompt. However, the existing 
language already requires the State agency to do everything within its 
control to provide a prompt refund. Therefore, the final rule remains 
unchanged. (See Sec. 273.18(h)).
Retention Rates
    Prior to PRWORA, the retention rates for collections by a State 
agency were 50 percent for IPV claims and 25 percent for IHE claims. 
Section 844 of the PRWORA changed these rates by amending section 16(a) 
of the FSA (7 U.S.C. 2025(a)). The new rates are 35 percent for IPVs 
and 25 percent for IHEs. The proposed rule reflected this change.
    Eight State agencies opposed this reduction to the retention rates. 
In addition, one State agency recommended a 10 percent retention for AE 
claims. We recognize the effects of the lower retention rates on State 
agencies. However, since these percentages are set by legislation, we 
cannot change the rates. As a result, the final rule contains the lower 
rates mandated by Congress. (See Sec. 273.18(k)).
    The proposed rule also authorized 35 percent retention for IHE 
collections via UCB offset. One State agency recommended that State 
agencies have an option to retain either 35 percent or 20 percent for 
these collections. Programming costs to separately track these 
collections, according to the State agency, outweigh the additional 
revenue generated by the higher retention rate. We understand the State 
agency's concern. However, since this percentage is set by legislation, 
we cannot change this rate. The final rule remains unchanged.
Bankruptcy
    The current regulations at 7 CFR 273.18(k) authorize State agencies 
to act on our behalf when households file for bankruptcy. We did not 
propose any changes to this policy. Two State agencies did, however, 
submit comments on bankruptcy.

Can IPV claims be discharged because of bankruptcy?

    On March 24, 1998, the Supreme Court in Cohen v. de la Cruz, 523 
U.S. 213 (1998), ruled that a fraud debt cannot discharged in 
bankruptcy. One State agency asked whether this ruling applies to IPV 
claims.
    The answer to this inquiry depends on how the IPV was initially 
determined. As discussed earlier in this preamble, there are four ways 
that State agencies determine IPVs: (1) An ADH, (2) a court hearing, 
(3) a signed waiver to an ADH and (4) a disqualification consent 
agreement (DCA). If the IPV was determined through a court hearing or 
an ADH then we believe that this is a finding of actual fraud and the 
Cohen decision would apply. Whether this finding of actual fraud 
applies to the signed ADH waiver or the DCA depends on whether the 
affected individual is admitting to committing fraud or guilt when he 
or she signs the document. Our current regulations at 7 CFR 273.16 
allow for individuals to accept disqualifications without admitting 
guilt. In these instances, we believe that, since there is no actual 
fraud determination, the resulting IPV claim may potentially be 
dischargeable in a

[[Page 41771]]

bankruptcy proceeding. Since this determination must be made on a 
claim-by-claim basis, being dependent on State-developed notices, we 
are not specifying any set policy in this final rule.

Why can't food stamp recipient claims be routinely excluded from 
bankruptcy?

    One State agency asked why recipient claims cannot be routinely 
excluded from bankruptcy like other Federal debts. In view of the 
complexities involved, we will be examining this issue more closely and 
address it in a future rulemaking.
Accounting Procedures
    Accounting procedures for State agencies to follow for recipient 
claims were outlined in Sec. 273.18(o) of the proposed rule (63 FR 
29329). States use these procedures to obtain the summarized data to be 
reported on the Status of Claims Against Households (FNS-209) report. 
We received one comment on reporting this data.

How will these new procedures affect the FNS-209 report?

    One State agency objects to any additional reporting requirements. 
The commenter also believes that the FNS-209 needs to be modified to 
capture the appropriate data and there should be no redundant reporting 
of data.
    The FNS-209 is being revised to reflect the changes brought about 
by this rule. We will publish a 60-day notice on the new form to 
provide you with an opportunity to comment. The new FNS-209 will 
contain only that information that we absolutely need for Federal 
program management. In addition, there will be no redundancy with any 
of our other forms or reporting requirements.
Delinquency and Processing Charges
    The proposed rule allows for delinquency and processing charges to 
be charged against households with delinquent claims. We received a 
number of comments on this issue.

What authority do we have to impose these charges?

    One recipient interest group questioned whether imposing these 
charges on households is authorized by the FSA. The FSA is silent on 
this issue. The Debt Collection Act of 1982, 31 U.S.C. 3717, as 
amended, (DCA) allows for a charge to cover the cost of processing or 
handling a delinquent claim. Since these charges are authorized in the 
DCA and are not expressly prohibited in the FSA, we are able to include 
these charges in the final rule.

What do we mean by imposing processing charges on households?

    Three commenters questioned the appropriateness of this provision. 
The commenters believed that imposing these charges is an unfair and 
unnecessary burden on recipients. Two of the commenters stated that 
imposing processing charges on recipients was not cost effective and 
placed an additional burden on State agencies.
    We want to clarify that the only charges authorized by this final 
rule are the processing charges that are imposed by Treasury for 
activity connected with the TOP. Since these charges are automatically 
imposed by Treasury, we have no choice but to accept the existence of 
these charges. As far as passing these charges onto the household, this 
provision only affects delinquent claims that are submitted to 
Treasury. Therefore, any household whose claim remains current will not 
be affected by additional charges. (See Sec. 273.18(n)(3)).
Treasury's Offset Programs
    In the proposed rule, we referred to Treasury's methods of 
collecting delinquent debts as the ``Federal Claims Collection 
Methods.'' We are now referring to these methods as Treasury's Offset 
Programs (TOP), which is consistent with the name used by Treasury. TOP 
is authorized by the section 3701 of the DCA, as amended by the Debt 
Collection Improvement Act of 1996, Public Law 104-134, (DCIA).
    TOP encompasses several collection methods and approaches. These 
methods and approaches currently include offsetting Federal payments 
such as Federal income tax refunds, Federal salary, retirement benefits 
and other payments. TOP also includes a broad-scope collection effort 
called cross-servicing.
    We began offsetting Federal tax refunds (referred to as FTROP) as a 
two-State demonstration project in 1992. The program has grown 
exponentially since that time and FTROP became a permanent collection 
method in 1995. In calendar year 1998, FTROP collections surpassed $65 
million. Like FTROP, Federal salary offset became permanent in 1995. 
Both FTROP and Federal salary offset were incorporated under TOP with 
the implementation of DCIA.
    The proposed rule introduced administrative offset and cross-
servicing into the mix of Federal collection programs under TOP that 
will affect households and individuals with food stamp recipient 
claims. Administrative offset is an umbrella name for offsets conducted 
against Federal payments due to individuals with delinquent debts. An 
agency in Treasury, the Financial Management Service (FMS), is 
currently phasing in the implementation of administrative offset. These 
payments come from a variety of sources, including, with some 
restrictions, social security and black lung benefits. FMS published a 
final rule (63 FR 71204) on December 23, 1998, describing what the 
restrictions will be and how this program will work.
    Cross-servicing is a comprehensive collection approach mandated by 
the DCIA and currently being implemented by Treasury. This approach 
encompasses administrative offsets as well as vigorously pursuing 
claims by using other collection actions such as contacting the 
individual directly and employing collection agencies. Since the best 
way to implement this provision of the amended DCA is still being 
determined, we do not include specific instructions or procedures for 
cross-servicing in this proposed or final rule. However, the specific 
collection actions used in cross servicing are already authorized by 
existing agency, Departmental, and Treasury rules. Therefore, we do not 
believe that any further regulations are necessary to implement cross-
servicing.

Changes in Procedures and Inclusion in this Final Rule

    TOP has proved to be a dynamic program. Both Treasury's and our 
procedures are regularly being updated to increase efficiency as well 
as adapt to the logistics and demands of the program. We did not 
foresee this degree of change when we originally drafted the proposed 
rule. We now realize that, because of the dynamic nature of TOP and 
cross-servicing, any regulation containing prescriptive procedural 
language on TOP and cross-servicing will soon become obsolete. For this 
reason, we are taking a different approach in this final rule.
    Many of the procedural aspects found in the proposed rule and in 
the existing regulation at 7 CFR 273.18(g)(5) and (g)(6) are removed 
from the final rule. The final rule only includes the language 
necessary to:
    (1) Mandate TOP participation;
    (2) Follow procedures required by law;
    (3) Follow procedures dictated by us and Treasury; and
    (4) Protect the rights of households and individuals.
    However, this does not mean that State agencies no longer need to 
follow these procedures. We will be providing these procedures (with 
any revisions) to

[[Page 41772]]

State agencies via memo and similar formats that can be revised as 
necessary. These procedures will also be available on the Internet, and 
we welcome the public's comments, questions, and suggestions regarding 
the procedures. Our Internet address is http://www. usda.gov/fns.
    We received a total of 43 comments on TOP. We address all of the 
comments, including those dealing with the prescriptive procedures that 
we are not including in this final rule.

Is requiring that State agencies refer all delinquent claims to TOP 
inconsistent with section 13 of the FSA?

    The proposed rule states that a State agency must refer to TOP all 
claims that are delinquent for at least six months. One commenter 
believes that this is inconsistent with the FSA. Section 13(b)(1)(C) of 
the FSA (7 U.S.C. 2022(b)(4)) was amended by PRWORA to provide Federal 
salary offset and FTROP (now rolled into TOP) as collection 
methodologies that State agencies may use. Section 13(b)(4) of the FSA 
(7 U.S.C. 2022(b)(4)) was amended by PRWORA to specify that claims are 
to be collected in accordance with ``. . . requirements established by 
the State agency for . . . electing a means of payment. . . .'' The 
commenter believes that it should be left up to the State agency to 
determine what claims should be submitted to TOP.
    We recognize this language exists in the FSA. However, only 
delinquent claims are submitted to TOP. The claim would not become 
delinquent if the State agency was regularly collecting the claim 
through the other methods. We are tasked by section 4(c) of the FSA (7 
U.S.C. 2013(c)) to issue regulations necessary for the effective and 
efficient administration of the FSP. TOP has proved to be a highly 
effective and efficient method for collecting delinquent debts. 
Therefore, we believe that it is within our authority to require that 
State agencies use TOP for delinquent claims. The final rule remains 
unchanged. (See Sec. 273.18(n)(1)).

Why do we need to refer AE claims for TOP?

    In the proposed rule, claims delinquent for six months or more, 
including AE claims, must be referred for TOP. One commenter objected 
to this requirement. According to the commenter, we should not penalize 
persons who are working and trying to become self-sufficient by taking 
their tax return and other Federal payments to pay a claim that was the 
fault of the State agency.
    Even though the State agency made the mistake, the household still 
received more benefits than it was entitled to receive. Section 
13(a)(2) of the FSA (7 U.S.C. 2022(a)(2)) clearly states that any 
overpayment should be pursued. This includes overpayments caused by 
agency errors. PRWORA amended section 13(b) of the FSA (7 U.S.C. 
2022(b)) by removing any restrictions against what involuntary 
collection methods can be used against AE claims. Since only delinquent 
claims are referred for TOP, the household has ample opportunity to 
make arrangements to repay the overpayment prior to the claim becoming 
delinquent. Therefore, State agencies must refer AE claims for TOP.

When must a State agency remove a debt from the TOP?

    Clarification is needed as to when a debt needs to be removed from 
the TOP. We combine the proposed rule with current policy to reach the 
following procedure that is reflected in the final rule:

You must remove a debt from TOP if any of the following occurs:

    (1) you discover that the debtor is a member of a food stamp 
household undergoing allotment reduction;
    (2) the claim is paid up or the claim is disposed of through a 
hearing, termination, compromise or any other means;
    (3) we or Treasury instruct you to remove the debt;
    (4) you discover that the claim was referred in error; or
    (5) you make arrangements with the household to resume payments.
    We strongly believe that it is improper to keep a debtor in TOP 
while simultaneously reducing the household's allotment. This is 
discussed in the Allotment Reduction section of this preamble and 
reflected in Sec. 273.18(n)(4) of this final rule.

Can State agencies submit claims for TOP that are delinquent for less 
than 180 days?

    The proposed rule requires State agencies to refer all claims that 
are delinquent for 180 days or more to TOP. One State agency proposed 
that State agencies be allowed to submit claims that are delinquent for 
less than 180 days.
    While this recommendation does have merit, we are hesitant to allow 
States to submit claims less than 180 days delinquent at this time. The 
reason for this is that claims referred to TOP incur various processing 
and collection charges that are passed on to the individual. The six 
month time frame provides the household and individuals with ample 
opportunity to pay off the claim without incurring these additional 
processing and collection charges. The rule remains unchanged. (See 
Sec. 273.18(n)(1)).

Doesn't TOP remove the ability for State agencies to work with 
individuals to persuade them to pay regularly?

    One State agency commented that requiring claims to be referred to 
TOP based on our definition of delinquency would impair its ability to 
persuade clients to pay their claim. We disagree. We believe that, in 
fact, this will enhance the State agency's ability to secure payment. 
The threat of referral to TOP will spur, rather than hamper, additional 
collections. In addition, the State agency is to remove an individual 
from TOP if it makes arrangements for that person resumes repaying the 
claim. This is reflected in the final rule at Sec. 273.18(n)(4).

How often are State agencies to submit delinquent claims for TOP?

    Section 3716(c)(6) of the DCA requires that State agencies refer to 
Treasury all claims that are delinquent for more than 180 days. 
Currently, State agencies submit all delinquent claims at the same time 
each year to TOP. The proposed rule does not provide specific time 
frames for this referral. One State agency asked for flexibility in the 
time frame for submitting claims for TOP. The commenter said that it 
may be burdensome to submit these claims all at once.
    We are currently working with Treasury and State agencies to 
determine the optimal time frame for all agencies involved in this 
endeavor. We share the State agency's concern and will try to develop 
flexible procedures. Our intention is to balance this referral 
requirement with a State agency's ability to do more frequent 
submissions. Since this is a procedural rather than a regulatory issue, 
it is not included in this final rule.

Why can't State agencies combine judgment with non-judgment claims when 
referring claims to TOP?

    A claim reduced to judgment is a claim that is part of a court 
order. State agencies routinely combine claims for the same individual 
into one claim for submittal to TOP. In the proposed rule, we do not 
allow State agencies to combine a claim reduced to judgment with a 
claim not reduced to judgment. The reason for that is the 10-year limit 
for referring non-judgment cases.

[[Page 41773]]

    Since this issue is procedural in nature, we are not including this 
in the final rule. However, we are currently working with Treasury and 
State agencies to find a way to accommodate this request.

Do State agencies really need to identify the type of claim when 
submitting the claim for TOP?

    We proposed that State identify the type of claim (IPV, IHE, or AE) 
when it is referred to TOP. State agencies need to identify the type of 
claim for retention purposes. Four State agencies responded by stating 
that this would be a burden and, in some cases, system changes would be 
needed to comply with this proposal.
    We recognize that this may be a problem for some State agencies 
and, therefore, will not include this as a requirement for TOP 
referral. Also, since this is procedural rather than regulatory, any 
further actions regarding this issue will take place outside the realm 
of these regulations.

Are additional review procedures really needed for salary offset?

    In the proposed rule, State agencies must review the records of 
individuals identified as Federal employees to ensure that the debt is 
eligible for salary offset. One State agency did not believe that this 
additional review is necessary. The commenter stated that this activity 
is already covered when these claims are referred for TOP.
    The Office of Personnel Management (OPM) requires that we provide 
for a hearing upon request of the employee to determine whether Federal 
salary offset is an appropriate collection method for this individual. 
We are currently working towards streamlining these procedures as much 
as possible. However, since this issue is procedural rather than 
regulatory, the specific procedures will not be included in these 
regulations.

How does a request for review affect the referral process?

    The proposed rule allows for a debtor to request a review before 
referral of the debt to TOP. One State agency commented that the 
referral process should not be suspended if the debtor's responses are 
simply complaints or requests for information. Another State agency 
stated that stopping the referral is a concern because individuals use 
this process to circumvent the offset process.
    We recognize the commenters' concerns and are in the process of 
developing a procedure to minimize the effect that a review request 
will have on TOP referrals. Since this is procedural rather than 
regulatory, the specific procedure will not be included in these 
regulations.

Why is the 10-year limit for referral based on the date of the original 
demand letter rather than on when the claim becomes delinquent?

    Currently, the 10-year limit for TOP referral is based on the date 
of the original demand letter. One State agency recommended that we 
change this to 10 years from the date of last payment. The 10-year 
limit for referral is to be based on when the ``right to take action'' 
for the claim began. This limit is a requirement set forth by Federal 
law. The first identifiable ``right to take action'' for food stamp 
recipient claims is the demand letter. Since this is a TOP requirement, 
we have no choice but to use the limit imposed by Treasury. Also, since 
this is a procedural issue, we will not be addressing it in this final 
rule.

Do State agencies really need to use the address provided by Treasury 
when notifying debtors of their TOP referral?

    The proposed rule requires that State agencies use a Treasury-
provided address to notice debtors of the intention to refer a claim to 
TOP. Without such an address and notice, the claim cannot be referred. 
Currently, Treasury provides addresses for about two-thirds of the 
potential TOP referrals. Three commenters believe that this is too 
restrictive. They believe that State agencies should be able to access 
and use valid addresses from any reliable source.
    Since this issue is procedural, we are not including it as part of 
the final rule. The issue, however, must be resolved. While we share 
the commenters' concern, overriding due process standards must prevail. 
Using an accurate address ensures these due process standards are met 
with respect to being properly delivered. We will work with State 
agencies and Treasury to develop a standard for addresses that will 
maximize the number of notices sent while ensuring that the addresses 
are valid.

Since TOP combines FTROP and Federal salary offset, how do we combine 
and reconcile the difference between the 60-day FTROP notice and the 
30-day Federal salary offset notice?

    Currently, we have two different appeal procedures in place for 
TOP. For most of TOP, the debtor receives one notice and has 60 days to 
request a review of the claim. For Federal salary offset, on the other 
hand, the debtor receives a different notice and has 30 days to request 
a Federal hearing. In the proposed rule, these two notices are being 
combined. Two State agencies asked how we could resolve the conflict 
between the two types of hearings as well as between the two time 
frames (60 versus 30 days) allotted for the debtor to respond.
    We recognize this conflict and we are working to develop procedures 
to resolve this situation. These procedures will be addressed separate 
from this final rule. However, the final rule will safeguard individual 
rights by specifying that State agencies must follow our procedures 
regarding reviews and hearings for TOP. (See Sec. 273.18(n)(2)(ii)).

What happens when a debtor who is about to be referred to TOP alleges 
to have never received the initial demand letter?

    One recipient interest group believes that, in cases where a debtor 
contacts the State agency and claims he or she never received the 
initial demand letter, the claim should no longer be considered 
delinquent. The commenter also recommends that the individual be given 
another opportunity to request a fair hearing on the merits of the 
claim.
    While we recognize the commenter's concern, a competing concern is 
that making this a requirement will invite abuse by some debtors to 
delay the process without good cause. Therefore, we are not including 
this requirement in the final rule. However, a State agency should 
provide this opportunity for a debtor where the State agency believes 
the debtor's assertion is justified.

Are we unjustly imposing a burden of proof on debtors when asking for 
documentation to dispute the claim?

    One recipient interest group felt that the proposed rule at 
Sec. 273.18(p)(2)(iv)(C)(3) unjustly places the burden of proof during 
a request for review on the debtor to show that the claim is not past 
due or legally enforceable on the household. That is not our intention. 
The request for review procedure begins with the State agency initially 
making the past due and legally enforceable determination based on its 
own records. Once this is done, the State agency then examines what the 
debtor submits for the request for review. If what the debtor submits 
does not show how or why the State agency's original determination is 
wrong, then the claim is still considered past due and legally 
enforceable. We do not believe that this in any way places an 
unreasonable burden on the debtor. We will, however, revise this 
language in our procedures to make this clearer.

[[Page 41774]]

What should be included in the TOP notice?

    The proposed rule contains the requirements for the TOP notice. We 
received 18 comments, mostly from recipient interest groups, on the 
contents of the proposed notice. These comments are summarized in the 
following table:

------------------------------------------------------------------------
                                                              Number of
                   Comments on TOP notice                     commenters
------------------------------------------------------------------------
1. Citing the legal authorities serves no purpose..........            1
2. Inform debtor to contact State agency if the debtor is              1
 participating and can have the claim collected via
 allotment reduction.......................................
3. Include the right and opportunity to review applicable              5
 records...................................................
4. List all TOP exemptions and restrictions................            4
5. Include rights of spouse for joint tax return...........            3
6. Retain information of what is needed when the debtor                1
 requests a review.........................................
7. Retain language providing information on the nature of              3
 the claim.................................................
------------------------------------------------------------------------

    In view of the procedural changes inherent to TOP, we are not 
including in this final rule an actual listing of exactly what is to be 
included in the TOP referral notice. The specific language will be 
provided to State agencies and will also be included on our 
aforementioned web page. We will take all of these comments into 
consideration when developing these procedures. In addition, we 
encourage feedback suggestions from State agencies, debtors and 
recipient interest groups once the procedures are released.

What are the changes in transmitting TOP collections to State agencies?

    The proposed rule does not describe how we are to transmit 
collections to State agencies. Two State agencies disagree with a 
procedural change that has recently been implemented. Under the old 
method of transferring collections to State agencies, we forwarded all 
TOP collections. At the end of the quarter, State agencies then 
returned about 78 percent of these collections back to us. (The 
remaining 22 percent is what the State agencies collectively retained 
for collecting the claim.)
    Under the new method, we would transmit only 35 percent of TOP 
collections to the State agency. The 35 percent is the maximum 
percentage of collections that can be retained. At the end of the 
reporting quarter, the State agency would then return the remainder 
(about one-third of the 35 percent) of our funds back to us. The 
remaining amount, about 22 percent of the total collection, would be 
the State retention. The only change in procedure is in the actual cash 
flow. Nothing is changing as far as the actual retention amounts 
received by the State agencies.
    The reason for this procedural change is that the old method for 
transferring collections is poor cash management. It is simply 
inappropriate to use Federal funds to provide the State agency with TOP 
collections, allow the agency to float these funds, and then have the 
State agency return the same funds to us at the end of the quarter.
    Since this is procedural rather than regulatory, this procedure is 
not included in the regulations.

Doesn't the new transmission procedure affect our ability to timely 
provide refunds?

    Two commenters believed that this new policy would affect their 
ability to timely process refunds. We disagree. Under the new policy, 
State agencies will immediately receive 35 percent of the amount 
collected. Refunds reported to us on the FNS-209 report are only about 
1 percent of collections. Therefore, we do not believe that this will 
affect the State agency's ability to provide refunds.
Implementation
    PRWORA set August 22, 1996 as the effective date for the provisions 
of law relating to recipient claims. We proposed that State agencies 
implement the discretionary aspects of these regulations no later than 
the first day of the month 180 days after the publication of the final 
rule. We received the following comment on the 180-day implementation 
deadline:

Can the implementation deadline be extended to account for all of the 
necessary changes in this rule?

    One State agency had a suggestion that State agencies be given one 
year to implement the discretionary changes. The commenter said that 
one year would be needed to make all of the necessary system changes.
    We recognize that the automation resources of many State agencies 
are stretched because of year 2000 considerations. Therefore, we agree 
with the State agency. The final rule will extend the deadline for 
implementation of the discretionary changes to the first day of the 
month, one year after the publication of this rule.

List of Subjects

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs-social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedure, Aliens, Claims, Food Stamps, 
Fraud, Grant programs--social programs, Penalties, Reporting and 
recordkeeping requirements, Social security, Students.

    Accordingly, 7 CFR parts 272 and 273 are amended as follows:
    1. The authority citation for parts 272 and 273 continues to read 
as follows:

    Authority: 7 U.S.C. 2011-2036.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, add a new paragraph (g)(160) to read as follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) * * *
    (160) Amendment 389. The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, Pub. L. 104-193, (PRWORA) set 
the date of enactment, August 22, 1996, as the effective date for the 
provisions of the law relating to recipient claims. These non-
discretionary provisions of this rule are at Sec. 273.18(c)(1)(ii)(B), 
Sec. 273.18(f) and Sec. 273.18(g) and are effective retroactive to 
August 22, 1996. The remaining amendments of this rule are effective 
and must be implemented no later than August 1, 2000.


Sec. 272.2  [Amended]

    3. In Sec. 272.2:
    a. Remove the last sentence of paragraph (a)(2); and
    b. Remove paragraph (d)(1)(xii).


Sec. 272.12  [Removed]

    4. Remove Sec. 272.12.

[[Page 41775]]

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    4. In Sec. 273.2, add paragraph (b)(4) to read as follows:


Sec. 273.2  Application processing.

* * * * *
    (b) Food Stamp application form. * * *
    (4) Privacy Act statement. As a State agency, you must notify all 
households applying and being recertified for food stamp benefits of 
the following:
    (i) The collection of this information, including the social 
security number (SSN) of each household member, is authorized under the 
Food Stamp Act of 1977, as amended, 7 U.S.C. 2011-2036. The information 
will be used to determine whether your household is eligible or 
continues to be eligible to participate in the Food Stamp Program. We 
will verify this information through computer matching programs. This 
information will also be used to monitor compliance with program 
regulations and for program management.
    (ii) This information may be disclosed to other Federal and State 
agencies for official examination, and to law enforcement officials for 
the purpose of apprehending persons fleeing to avoid the law.
    (iii) If a food stamp claim arises against your household, the 
information on this application, including all SSNs, may be referred to 
Federal and State agencies, as well as private claims collection 
agencies, for claims collection action.
    (iv) The providing of the requested information, including the SSN 
of each household member, is voluntary. However, failure to provide 
this information will result in the denial of food stamp benefits to 
your household.
* * * * *

    5. Revise Sec. 273.18 to read as follows:


Sec. 273.18  Claims against households.

    (a) General. (1) A recipient claim is an amount owed because of:
    (i) Benefits that are overpaid or
    (ii) Benefits that are trafficked. Trafficking is defined in 7 CFR 
271.2.
    (2) This claim is a Federal debt subject to this and other 
regulations governing Federal debts. The State agency must establish 
and collect any claim by following these regulations.
    (3) As a State agency, you must develop a plan for establishing and 
collecting claims that provides orderly claims processing and results 
in claims collections similar to recent national rates of collection. 
If you do not meet these standards, you must take corrective action to 
correct any deficiencies in the plan.
    (4) The following are responsible for paying a claim:
    (i) Each person who was an adult member of the household when the 
overpayment or trafficking occurred;
    (ii) A sponsor of an alien household member if the sponsor is at 
fault; or
    (iii) A person connected to the household, such as an authorized 
representative, who actually trafficks or otherwise causes an 
overpayment or trafficking.
    (b) Types of claims. There are three types of claims:

------------------------------------------------------------------------
           An . . .                             is . . .
------------------------------------------------------------------------
(1) Intentional Program        any claim for an overpayment or
 violation (IPV) claim.         trafficking resulting from an individual
                                committing an IPV. An IPV is defined in
                                Sec.  273.16.
(2) Inadvertent household      any claim for an overpayment resulting
 error (IHE) claim.             from a misunderstanding or unintended
                                error on the part of the household.
(3) Agency error (AE) claim..  any claim for an overpayment caused by an
                                action or failure to take action by the
                                State agency. The only exception is an
                                overpayment caused by a household
                                transacting an untampered expired
                                Authorization to Participate (ATP) card.
------------------------------------------------------------------------

    (c) Calculating the claim amount--(1) Claims not related to 
trafficking.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       (i) As a State agency, you
------------------------------------------------------------------------
must calculate a claim . . .  and . . .             and . . .
 
back to at least twelve       for an IPV claim,     for all claims,
 months prior to when you      the claim must be     don't include any
 become aware of the           calculated back to    amounts that
 overpayment.                  the month the act     occurred more than
                               of IPV first          six years before
                               occurred.             you became aware of
                                                     the overpayment.
------------------------------------------------------------------------
            (ii) The actual steps for calculating a claim are
------------------------------------------------------------------------
you . . .                     unless . . .          then . . .
 
(A) determine the correct
 amount of benefits for each
 month that a household
 received an overpayment.
(B) do not apply the earned   the claim is an AE    apply the earned
 income deduction to that      claim.                income deduction.
 part of any earned income
 that the household failed
 to report in a timely
 manner when this act is the
 basis for the claim.
(C) subtract the correct      this answer is zero    dispose of the
 amount of benefits from the   or negative.          claim referral.
 benefits actually received.
 The answer is the amount of
 the overpayment.
(D) reduce the overpayment    you are not aware of  the amount of the
 amount by any EBT benefits    any expunged          overpayment
 expunged from the             benefits.             calculated in
 household's EBT benefit                             paragraph
 account in accordance with                          (e)(1)(ii)(C) of
 your own procedures. The                            this section is the
 difference is the amount of                         amount of the
 the claim.                                          claim.
------------------------------------------------------------------------


[[Page 41776]]

    (2) Trafficking-related claims. Claims arising from trafficking-
related offenses will be the value of the trafficked benefits as 
determined by:
    (i) The individual's admission;
    (ii) Adjudication; or
    (iii) The documentation that forms the basis for the trafficking 
determination.
    (d) Claim referral management.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       (1) As a State agency, you
------------------------------------------------------------------------
must . . .                    and you . . .         unless . . .
 
establish a claim before the  will ensure that no   you develop and use
 last day of the quarter       less than 90          your own standards
 following the quarter in      percent of all        and procedures that
 which the overpayment or      claim referrals are   have been approved
 trafficking incident was      either established    by us (see
 discovered.                   or disposed of        paragraph (d)(2) of
                               according to this     this section).
                               time frame.
------------------------------------------------------------------------

    (2) Instead of using the standard in paragraph (d)(1) of this 
section, you may opt to develop and follow your own plan for the 
efficient and effective management of claim referrals.
    (i) This plan must be approved by us.
    (ii) At a minimum, this plan must include:
    (A) Justification as to why your standards and procedures will be 
more efficient and effective than our claim referral standard;
    (B) Procedures for the detection and referral of potential 
overpayments or trafficking violations;
    (C) Time frames and procedures for tracking claim referrals through 
date of discovery to date of establishment;
    (D) A description of the process to ensure that these time frames 
are being met;
    (E) Any special procedures and time frames for IPV referrals; and
    (F) A procedure to track and follow-up on IPV claim referrals when 
these referrals are referred for prosecutorial or similar action.
    (e) Initiating collection action and managing claims--(1) 
Applicability. State agencies must begin collection action on all 
claims unless the conditions under paragraph (g)(2) of this section 
apply.
    (2) Pre-establishment cost effectiveness determination. A State 
agency may opt not to establish and subsequently collect an overpayment 
that is not cost effective. The following is our cost-effectiveness 
policy for State agencies:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
         (i) You may follow your own cost effectiveness plan and
------------------------------------------------------------------------
opt not to establish any      unless . . .          or . . .
 claim if . . .
you determine that the claim  you do not have a     you already
 referral is not cost          cost-effectiveness    established the
 effective to pursue.          plan approved by us.  claim or discovered
                                                     the overpayment in
                                                     a quality control
                                                     review.
------------------------------------------------------------------------
              (ii) Or you may follow the FNS threshold and
------------------------------------------------------------------------
opt not to establish any      unless . . .          or . . .
 claim if . . .
you determine that the claim  the household is      you already
 referral is $125 or less.     currently             established the
                               participating in      claim or discovered
                               the Program.          the overpayment in
                                                     a quality control
                                                     review.
------------------------------------------------------------------------

    (3) Notification of claim. (i) Each State agency must develop and 
mail or otherwise deliver to the household written notification to 
begin collection action on any claim.
    (ii) The claim will be considered established for tracking purposes 
as of the date of the initial demand letter or written notification.
    (iii) If the claim or the amount of the claim was not established 
at a hearing, the State agency must provide the household with a one-
time notice of adverse action. The notice of adverse action may either 
be sent separately or as part of the demand letter.

(iv) The initial demand letter or notice of adverse action must 
include language stating . . .

    (A) The amount of the claim.
    (B) The intent to collect from all adults in the household when the 
overpayment occurred.
    (C) The type (IPV, IHE, AE or similar language) and reason for the 
claim.
    (D) The time period associated with the claim.
    (E) How the claim was calculated.
    (F) The phone number to call for more information about the claim.
    (G) That, if the claim is not paid, it will be sent to other 
collection agencies, who will use various collection methods to collect 
the claim.
    (H) The opportunity to inspect and copy records related to the 
claim.
    (I) Unless the amount of the claim was established at a hearing, 
the opportunity for a fair hearing on the decision related to the 
claim. The household will have 90 days to request a fair hearing.
    (J) That, if not paid, the claim will be referred to the Federal 
government for federal collection action.
    (K) That the household can make a written agreement to repay the 
amount of the claim prior to it being referred for Federal collection 
action.
    (L) That, if the claim becomes delinquent, the household may be 
subject to additional processing charges.
    (M) That the State agency may reduce any part of the claim if the 
agency believes that the household is not able to repay the claim.
    (N) A due date or time frame to either repay or make arrangements 
to repay the claim, unless the State agency is to impose allotment 
reduction.
    (O) If allotment reduction is to be imposed, the percentage to be 
used and the effective date.
    (v) The due date or time frame for repayment must be not later than 
30 days after the date of the initial written notification or demand 
letter.
    (vi) Subsequent demand letters or notices may be sent at the 
discretion of the State agency. The language to be used and content of 
these letters is left up to the State agency.
    (4) Repayment agreements. (i) Any repayment agreement for any claim 
must contain due dates or time frames for the periodic submission of 
payments.

[[Page 41777]]

    (ii) The agreement must specify that the household will be subject 
to involuntary collection action(s) if payment is not received by the 
due date and the claim becomes delinquent.
    (5) Determining Delinquency. (i) Unless specified in paragraph 
(e)(5)(iv) of this section, a claim must be considered delinquent if:
    (A) The claim has not been paid by the due date and a satisfactory 
payment arrangement has not been made; or
    (B) A payment arrangement has been established and a scheduled 
payment has not been made by the due date.
    (ii) The date of delinquency for a claim covered under paragraph 
(e)(5)(i)(A) of this section is the due date on the initial written 
notification/demand letter. The claim will remain delinquent until 
payment is received in full, a satisfactory payment agreement is 
negotiated, or allotment reduction is invoked.
    (iii) The date of delinquency for a claim covered under paragraph 
(e)(5)(i)(B) of this section is the due date of the missed installment 
payment. The claim will remain delinquent until payment is received in 
full, allotment reduction is invoked, or if the State agency determines 
to either resume or re-negotiate the repayment schedule.
    (iv) A claim will not be considered delinquent if another claim for 
the same household is currently being paid either through an 
installment agreement or allotment reduction and you, as a State 
agency, expect to begin collection on the claim once the prior claim(s) 
is settled.
    (v) A claim is not subject to the requirements for delinquent debts 
if the State agency is unable to determine delinquency status because 
collection is coordinated through the court system.
    (6) Fair hearings and claims. (i) A claim awaiting a fair hearing 
decision must not be considered delinquent.
    (ii) If the hearing official determines that a claim does, in fact, 
exist against the household, the household must be re-notified of the 
claim. The language to be used in this notice is left up to the State 
agency. The demand for payment may be combined with the notice of the 
hearing decision. Delinquency must be based on the due date of this 
subsequent notice and not on the initial pre-hearing demand letter sent 
to the household.
    (iii) If the hearing official determines that a claim does not 
exist, the claim is disposed of in accordance with paragraph (e)(8) of 
this section.
    (7) Compromising claims. (i) As a State agency, you may compromise 
a claim or any portion of a claim if it can be reasonably determined 
that a household's economic circumstances dictate that the claim will 
not be paid in three years.
    (ii) You may use the full amount of the claim (including any amount 
compromised) to offset benefits in accordance with Sec. 273.17.
    (iii) You may reinstate any compromised portion of a claim if the 
claim becomes delinquent.
    (8) Terminating and writing-off claims-(i) A terminated claim is a 
claim in which all collection action has ceased. A written-off claim is 
no longer considered a receivable subject to continued Federal and 
State agency collection and reporting requirements.
    (ii) The following is our claim termination policy:

------------------------------------------------------------------------
 As a State agency, if . . .     Then you . . .         Unless . . .
------------------------------------------------------------------------
(A) you find that the claim   must discharge the    it is appropriate to
 is invalid.                   claim and reflect     pursue the
                               the event as a        overpayment as a
                               balance adjustment    different type of
                               rather than a         claim (e.g., as an
                               termination.          IHE rather than an
                                                     IPV claim).
(B) all adult household       must terminate and    you plan to pursue
 members die.                  write-off the claim.  the claim against
                                                     the estate.
(C) the claim balance is $25  must terminate and    other claims exist
 or less and the claim has     write-off the claim.  against this
 been delinquent for 90 days                         household resulting
 or more.                                            in an aggregate
                                                     claim total of
                                                     greater than $25.
(D) you determine it is not   must terminate and    we have not approved
 cost effective to pursue      write-off the claim.  your overall cost-
 the claim any further.                              effectiveness
                                                     criteria.
(E) the claim is delinquent   must terminate and    you plan to continue
 for three years or more.      write-off the claim.  to pursue the claim
                                                     through Treasury's
                                                     Offset Program.
(F) you cannot locate the     may terminate and
 household.                    write-off the claim.
(G) a new collection method   may reinstate a       you decide not to
 or a specific event (such     terminated and        pursue this option.
 as winning the lottery)       written-off claim.
 substantially increases the
 likelihood of further
 collections.
------------------------------------------------------------------------

    (f) Acceptable forms of payment.

----------------------------------------------------------------------------------------------------------------
              You may collect a claim by:                                     However . . .
----------------------------------------------------------------------------------------------------------------
(1) Reducing benefits prior to issuance. This includes   You must follow the instructions and limits found in
 allotment reduction and offsets to restored benefits.    paragraphs (g)(1) and (g)(3) of this section.
(2) Reducing benefits after issuance. These are          You must follow the instructions and limits found in
 benefits from electronic benefit transfer (EBT)          paragraph (g)(2) of this section.
 accounts.
(3) Accepting cash or any of its generally accepted      You do not have to accept credit or debit cards if you
 equivalents. These equivalents include check, money      do not have the capability to accept these payments.
 order, and credit or debit cards.
(4) Accepting paper food coupons.......................  You must destroy any coupons or coupon books that are
                                                          not returned to inventory and document as appropriate.
(5) Conducting your own offsets and intercepts. This     You must follow any limits that may apply in paragraph
 includes but is not limited to wage garnishments and     (g) of this section.
 intercepts of various State payments. These
 collections are considered ``cash'' for FNS claim
 accounting and reporting purposes.
(6) Requiring the household to perform public service..  This form of payment must be ordered by a court and
                                                          specifically be in lieu of paying any claim.
(7) Participating in the Treasury collection programs..  You must follow the procedures found in paragraph (n)
                                                          of this section.
----------------------------------------------------------------------------------------------------------------


[[Page 41778]]

    (g) Collection methods.
    (1) Allotment reduction. The following is our allotment reduction 
policy:

----------------------------------------------------------------------------------------------------------------
           As a State agency, you must . . .                                   Unless . . .
----------------------------------------------------------------------------------------------------------------
(i) Automatically collect payments for any claim by      the claim is being collected at regular intervals at a
 reducing the amount of monthly benefits that a           higher amount or another household is already having
 household receives.                                      its allotment reduced for the same claim (see
                                                          paragraph (g)(1)(vi) of this section).
(ii) For an IPV claim, limit the amount reduced to the   the household agrees to a higher amount.
 greater of $20 per month or 20 percent of the
 household's monthly allotment or entitlement.
(iii) For an IHE or AE claim, limit the amount reduced   the household agrees to a higher amount.
 to the greater of $10 per month or 10 percent of the
 household's monthly allotment.
(iv) Not reduce the initial allotment when the           the household agrees to this reduction.
 household is first certified.
(v) Not use additional involuntary collection methods    the additional payment is voluntary; or the source of
 against individuals in a household that is already       the payment is irregular and unexpected such as a
 having its benefit reduced.                              State tax refund or lottery winnings offset.
----------------------------------------------------------------------------------------------------------------
                                                  You may . . .
----------------------------------------------------------------------------------------------------------------
  (vi) Collect using allotment reduction from two separate households for the same claim. However, you are not
                                required to perform this simultaneous reduction.
----------------------------------------------------------------------------------------------------------------
   (vii) Continue to use any other collection method against any individual who is not a current member of the
                                household that is undergoing allotment reduction.
----------------------------------------------------------------------------------------------------------------

    (2) Benefits from EBT accounts. (i) As a State agency, you must 
allow a household to pay its claim using benefits from its EBT benefit 
account.
    (ii) You must comply with the following EBT benefit claims 
collection and adjustment requirements:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
   (A) For collecting from active (or reactivated) EBT benefits . . .
------------------------------------------------------------------------
You . . .                     or . . .              and . . .
need written permission       oral permission for   the retention rules
 which may be obtained in      one time reductions   do apply to this
 advance and done in           with you sending      collection.
 accordance with paragraph     the household a
 (g)(2)(iv) of this section;.  receipt of the
                               transaction within
                               10 days.
------------------------------------------------------------------------
            (B) For collecting from stale EBT benefits . . .
------------------------------------------------------------------------
You . . .                     and . . .             and . . .
 
must mail or otherwise        give the household    the retention rules
 deliver to the household      at least 10 days to   apply to this
 written notification that     notify you that it    collection.
 you intend to apply the       doesn't want to use
 benefits to the outstanding   these benefits to
 claim.                        pay the claim.
------------------------------------------------------------------------
      (C) For making an adjustment with expunged EBT benefits . . .
------------------------------------------------------------------------
You . . .                     and . . .             and . . .
must adjust the amount of     this can be done      the retention rules
 any claim by subtracting      anytime.              do not apply to
 any expunged amount from                            this adjustment.
 the EBT benefit account for
 which you become aware.
------------------------------------------------------------------------

    (iii) A collection from an EBT account must be non-settling against 
the benefit drawdown account.
    (iv) At a minimum, any written agreement with the household to 
collect a claim using active EBT benefits must include:
    (A) A statement that this collection activity is strictly 
voluntary;
    (B) The amount of the payment;
    (C) The frequency of the payments (i.e., whether monthly or one 
time only);
    (D) The length (if any) of the agreement; and
    (E) A statement that the household may revoke this agreement at any 
time.
    (3) Offsets to restored benefits. You must reduce any restored 
benefits owed to a household by the amount of any outstanding claim. 
This may be done at any time during the claim establishment and 
collection process.
    (4) Lump sum payments. You must accept any payment for a claim 
whether it represents full or partial payment. The payment may be in 
any of the acceptable formats.
    (5) Installment payments. (i) You may accept installment payments 
made for a claim as part of a negotiated repayment agreement.
    (ii) As a household, if you fail to submit a payment in accordance 
with the terms of your negotiated repayment schedule, your claim 
becomes delinquent and it will be subject to additional collection 
actions.
    (6) Intercept of unemployment compensation benefits. (i) As a State 
agency, you may arrange with a liable individual to intercept his or 
her unemployment compensation benefits for the collection of any claim. 
This collection option may be included as part of a repayment 
agreement.
    (ii) You may also intercept an individual's unemployment 
compensation benefits by obtaining a court order.
    (iii) You must report any intercept of unemployment compensation 
benefits

[[Page 41779]]

as ``cash'' payments when they are reported to us.
    (7) Public service. If authorized by a court, the value of a claim 
may be paid by the household performing public service. As a State 
agency, you will report these amounts in accordance with our 
instructions.
    (8) Other collection actions. You may employ any other collection 
actions to collect claims. These actions include, but are not limited 
to, referrals to collection and/or other similar private and public 
sector agencies, state tax refund and lottery offsets, wage 
garnishments, property liens and small claims court.
    (9) Unspecified joint collections. When an unspecified joint 
collection is received for a combined public assistance/food stamp 
recipient claim, each program must receive its pro rata share of the 
amount collected. An unspecified joint collection is when funds are 
received in response to correspondence or a referral that contained 
both the food stamp and other program claim(s) and the debtor does not 
specify to which claim to apply the collection.
    (h) Refunds for overpaid claims. (1) As a household, if you overpay 
a claim, the State agency must provide a refund for the overpaid amount 
as soon as possible after the State agency finds out about the 
overpayment. You will be paid by whatever method the State agency deems 
appropriate considering the circumstances.
    (2) You are not entitled to a refund if the overpaid amount is 
attributed to an expunged EBT benefit.
    (i) Interstate claims collection. (1) Unless a transfer occurs as 
outlined in paragraph (i)(2) of this section, as a State agency, you 
are responsible for initiating and continuing collection action on any 
food stamp recipient claim regardless of whether the household remains 
in your State.
    (2) You may accept a claim from another State agency if the 
household with the claim moves into your State. Once you accept this 
responsibility, the claim is yours for future collection and reporting. 
You will report interstate transfers to us in accordance with our 
instructions.
    (j) Bankruptcy. A State agency may act on our behalf in any 
bankruptcy proceeding against a bankrupt household with outstanding 
recipient claims.
    (k) Retention rates. (1) The retention rates for State agencies are 
as follows:

------------------------------------------------------------------------
     If you collect an . . .          then the retention rate is . . .
------------------------------------------------------------------------
(i) IPV claim....................  35 percent.
(ii) IHE claim...................  20 percent.
(iii) IHE claim by reducing a      35 percent.
 person's unemployment
 compensation benefit.
(iv) AE claim....................  nothing.
------------------------------------------------------------------------

    (2) These rates do not apply to any reduction in benefits when you 
disqualify someone for an IPV.
    (l) Submission of payments to us. A State agency must send us the 
value of funds collected for IHE, IPV or AE claims according to our 
instructions. We must pay you for claims collection retention by 
electronic funds transfer.
    (m) Accounting procedures. (1) As a State agency, you must maintain 
an accounting system for monitoring recipient claims against 
households. This accounting system shall consist of both the system of 
records maintained for individual debtors and the accounts receivable 
summary data maintained for these debts.
    (2) At a minimum, the accounting system must document the following 
for each claim:
    (i) The date of discovery;
    (ii) The reason for the claim;
    (iii) The calculation of the claim;
    (iv) The date you established the claim;
    (v) The methods used to collect the claim;
    (vi) The amount and incidence of any claim processing charges;
    (vii) The reason for the final disposition of the claim;
    (viii) Any collections made on the claim;
    (ix) Any correspondence, including follow-up letters, sent to the 
household.
    (3) At a minimum, your accounting or certification system must also 
identify the following for each claim:
    (i) Those households whose claims have become delinquent;
    (ii) Those situations in which an amount not yet restored to a 
household can be used to offset a claim owed by the household; and
    (iii) Those households with outstanding claims that are applying 
for benefits.
    (4) When requested and at intervals determined by us, your 
accounting system must also produce:
    (i) Accurate and supported outstanding balances and collections for 
established claims; and
    (ii) Summary reports of the funds collected, the amount submitted 
to FNS, the claims established and terminated, any delinquent claims 
processing charges, the uncollected balance and the delinquency of the 
unpaid debt.
    (5) On a quarterly basis, unless otherwise directed by us, your 
accounting system must reconcile summary balances reported to 
individual supporting records.
    (n) Treasury's Offset Programs (TOP).
    (1) Referring debts to TOP. (i) As a State agency, you must refer 
to TOP all recipient claims that are delinquent for 180 or more days.
    (ii) You must certify that all of these claims to be referred to 
TOP are 180 days delinquent and legally enforceable.
    (iii) You must refer these claims in accordance with our and the 
Department of the Treasury's (Treasury) instructions.
    (iv) You must not refer claims to TOP that:
    (A) You become aware that the debtor is a member of a participating 
household that is having its allotment reduced to collect the claim; or
    (B) Fall into any other category designated by us as non-referable 
to TOP.
    (2) Notifying debtors of referral to TOP. (i) As a State agency, 
you must notify the debtor of the impending referral to TOP according 
to our instructions relating to:
    (A) What constitutes an adequate address to send the notice;
    (B) What specific language will be included in the TOP referral 
notice;
    (C) What will be the appropriate time frames and appeal rights; and
    (D) Any other information that we determine necessary to fulfill 
all due process and other legal requirements as well as to adequately 
inform the debtor of the impending action.
    (ii) You must also follow our instructions regarding procedures 
connected with responding to inquiries, subsequent reviews and 
hearings, and any other procedures determined by us as necessary in the 
debtor notification process.
    (3) Effect on debtors. (i) If you, as a debtor, have your claim 
referred to TOP,

[[Page 41780]]

any eligible Federal payment that you are owed may be intercepted 
through TOP.
    (ii) You may also be responsible for paying any collection or 
processing fees charged by the Federal government to intercept your 
payment.
    (4) Procedures when a claim is in TOP. (i) As a State agency, you 
must follow FNS and Treasury procedures when the claim is in TOP.
    (ii) You must remove a claim from TOP if:
    (A) FNS or Treasury instruct you to remove the debt; or
    (B) You discover that:
    (1) The debtor is a member of a food stamp household undergoing 
allotment reduction;
    (2) The claim is paid up;
    (3) The claim is disposed of through a hearing, termination, 
compromise or any other means;
    (4) The claim was referred to TOP in error; or
    (5) You make an arrangement with the debtor to resume payments.
    (5) Receiving and reporting. As a State agency, you must follow our 
procedures on receiving and reporting TOP payments.
    (6) Security or confidentiality agreements. As a State agency, you 
must follow our procedures regarding any security or confidentiality 
agreements or processes necessary for TOP participation.

    Dated: June 21, 2000.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 00-16775 Filed 7-5-00; 8:45 am]
BILLING CODE 3410-30-P